China’s Growth Numbers: Can Electricity Usage Give Wall Street Shocks

Is China’s GDP data reliable? The following are excerpts from three articles, the Economist, saying for sure GDP smoothing, then Business Insider, says for certain, cooking up GDP and the third from Christian Science Monitor, looking at electricity usage for indicator into China’s GDP growth. The debate had been raging for months, but one thing is for certain, the debate is only in theory as the only one who really knows, about China’s GDP is the Chinese top planners.

The Following is from the Economist (Source)

IT ALL seems a little too perfect to be true. The Chinese government set a growth target of “about 7%” this year. And for a second consecutive quarter, despite ample evidence of stress in its industrial sector, it managed to hit that right on its head. In the three months from April to June, the economy expanded 7% compared with the same period a year earlier. Cue the chorus of scepticism: Chinese data just cannot be trusted, goes the usual refrain. Yes and no. There is a difference between smoothing data and totally fabricating it. Evidence suggests that China is guilty of the former (the lesser charge) but not the latter (the more serious allegation).

The following is from Business Insider (source)

At this point, Wall Street is just playing along with China.
“You can’t trust the numbers,” Bill Miller, CEO of LMM Investments, told a room full of investors at CNBC’s Delivering Alpha Conference this week.
Miller spoke on Wednesday, just hours after China announced that it once again hit its gross-domestic-product growth target of 7%.
This despite the fact that its economy seems to be experiencing a major slowdown.
But after 25 years of watching China hit the mythical 7% mark without fail, analysts understand the charade.
There are dead giveaways everywhere. The most obvious way to tell that China’s books are cooked, though, is by looking at how its neighbors are faring.

“Singapore’s GDP declined 4.6% last quarter,” Miller said. “Singapore’s numbers you can trust. That’s a good sense of how much the Chinese economy has slowed down.”
Singapore’s GDP was dragged down by a huge slowdown in manufacturing — down 14% in the second quarter of this year. And this swoon was caused mostly by a lack of demand from its neighbor, China.

The following is from Christian Science Monitor (Source)

Last year China reported the slowest economic growth in 24 years, about 7.4 percent. But the true figure may actually be much lower, and the evidence is buried in electricity figures, which show just 3.8 percent growth in electricity consumption.
David Fridley, a staff scientist in the China Energy Group at the Lawrence Berkeley National Laboratory, has been a longtime collaborator with the Chinese on energy management, efficiency, and policy. Fridley, who has held Chinese energy-related jobs for 35 years, believes that electricity consumption in China is a better indicator of its economic growth.
Historically, electricity consumption and economic growth in China have been very closely linked. “From 2005 to 2013, the average elasticity of electricity demand was 1.09, meaning electricity demand was up about 1.09 percent for every percent rise in GDP,” Fridley wrote in an email. “In 2014, that number fell to 0.51, the lowest in this 10-year period. During the economic crisis of 2008, it did fall below the average, to 0.60, but quickly rebounded to above 1.”
That tells Fridley that something is up. He’s not the only one who thinks the government growth numbers aren’t reliable. China’s premier, Li Keqiang, has said China’s GDP figures are “for reference only.” Bloomberg reported that in a declassified US diplomatic cable from 2007 then-US ambassador Clark Randt related a dinner conversation with Li, secretary general of Liaoning Province at the time, in which Li revealed his preferred indicators of Chinese economic activity: rail cargo volume, loan disbursements and – wait for it – electricity consumption. China’s leaders don’t believe their own government growth numbers.

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