China: Don't Believe the Negative Hype

China’s stronger-than-expected GDP growth of 7.9 percent in the second quarter has made some market pundits skeptical of the China story. They claim that the ruling party has “massaged” the data in order to project stability.

The most widely cited negative point has been the 3.35 percent annual decline in electrical power generation during the first half of 2009.

However, we believe the decline in power usage is a response to China’s nationwide efforts to increase energy efficiency and reduce greenhouse gas emissions from the country’s power plants and factories. The original goal from five years ago was to cut energy intensity by 20 percent by 2010 so a decline was expected.

The negative correlation between energy intensity and GDP growth isn’t a new one either. Last year, China experienced 9 percent GDP growth while reducing the country’s per capita energy intensity by 5 percent.

In addition, other recent data points suggest economic activity is recovering at a rapid rate.

Adjusted for seasonal factors, China’s overall power generation rose 4.2 percent in July. That’s the fastest growth rate in 2009.

For the first time this year, China’s railroad cargo statistics saw a positive increase on a year-over-year basis. We’ve also seen the price of copper, historically a good barometer of economic growth; recover from significantly depressed levels at the start of the year.

Comments

[Mad Hedge F...:]

sd,. Car sales are soared by 48% to a 12 million unit annual rate. Consumer spending is soaring. Property prices are going crazy, with prices and volumes back to all time highs. The bubble is back. No, I’m not talking about the US, dummy, it’s China. I’m amazed that the Middle Kingdom’s car sales have exceed those of the US for the first time in history, without a peep in the press, a feat that Germany and Japan were never able to pull off. It just shows how much time we are wasting gazing at our own navel. Too bad they don’t have enough roads to drive them on. The big question is how long until they take over the world market? See my earlier piece on BYD Motors at www.madhedgefundtrader.... That’s what happens when your stimulus package gets spent on stimulus, and not on a 12 year backlog of pork.

Aug 10 03:31 PM

[Alphameister:]

Thanks, Frank. Glad you are in the minority here, however, so the Chinese "bubble" can continue to climb a Great Wall of Worry! We all know that China's electricity-intensive manufacturing/export sector has experienced a severe contraction, so the dichotomy between GDP growth and eletricity usage should not be surprising.

Aug 11 12:01 PM

[Tony Daltorio:]

Finally! Somebody that "gets" it. China will experience a correction, but it is NOT in a bubble.

The whole thing about electrical power generation is just a red herring thrown out there by people who want the public to invest in the US and not China.

The reason the power generation figures are going lower is that China is becoming MORE energy efficient and have begun to upgrade their power infrastructure. Which is more than the US, whose power infrastructure is stuck in the last century, is doing.

Aug 11 02:00 PM