Perspective On China’s Growth

Regular readers of this blog know that I’m a skeptic when it comes to economic numbers published by the Chinese. Recent reports of a strong rebound in the country seemed at odds with depressed world demand for the sorts of goods China exports and now there are a couple of data points that cast doubt on just how much growth is really taking place.

First,  China Stakes reported that power usage was down in April:

Power generation in China dropped again in April, indicating that the macroeconomic rebound the market has expected is yet to appear.  

According to the State Grid’s latest statistics, April’s national power generation totaled 274.763 billion kwh, a fall of 3.55%, year on year, and a decline of over 3% from the previous month.

The Ministry of Industry and Information Technology says that in the first three months of this year, China’s power consumption totaled 780.990 kwh, down 4.02%, year on year, and power consumption in March alone totaled 283.389 kwh, down 2.01%.  

Whenever you’re trying to get a handle on economic activity in countries that have less than ideal data gathering systems or are prone to inflate the real numbers, power consumption is a pretty reliable guage of what’s really going on. 

The second set of data comes from the WSJ Real Time Economics blog:

The central bank’s breakdown of new medium- and long-term borrowing, the kind most likely to be used to pay for investment, shows that 50.1% went to infrastructure in the first quarter. That clearly reflects how banks are being pressed to give priority to government stimulus projects. But such lending has its own risks. “Recent bank lending has been concentrated in government projects which, while helping drive rapid investment, also requires evaluation of local governments’ ability to repay the debts,” the central bank said.

Outside of stimulus projects, demand for credit is not as strong. Only 7.9% of new medium- and long-term lending went to manufacturing, and 11.2% to real estate development.

On the one hand, the figures could allay worries that the surge in bank lending is financing an increase in excess manufacturing capacity in China. On the other, it shows that many Chinese businesses are still having a tough time.

“Private-sector investment sentiment remains weak,” the central bank said. “Small- and medium-sized enterprises have been affected by the financial crisis, and their effective demand for credit and financing ability has declined.” It noted that small businesses still have difficulty getting financing, but gave no precise figures for loans to the sector.

These numbers would suggest that at least some of the recent increases in China’s GDP are coming from infrastructure related spending and not from an increase in fundamental business activity. There’s nothing wrong with infrastructure spending, it does put the unemployed to work and has positive long-term benefits but it doesn’t change the fundamental problem of an absence of demand for China’s products. 

There’s more than a good chance that the growth China is reporting are puff numbers and it seems pretty clear that any improvement in economic activity is the result of government pump priming and not a recovery in fundamentals.

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