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Chinese Electricity Use May Mislead On Economy

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Electricity production – supposedly a rare “honest†gauge of Chinese industrial activity and economic growth – may be misleading investors on the true state of the nation, analysts warn.

A recent surge in power generation may have more to do with the demise of a commodity arbitrage play than a revival of activity in China’s “workshop of the world†factory heartlands. It could also mean that the world’s third biggest economy may not find a base for broad recovery next year.

One strong note of caution on electricity consumption, issued this week by the chief China economist at Royal Bank of Scotland, said that changes in aluminium production – a notoriously power-hungry industry – were distorting the numbers and may be significantly exaggerating the true level of industrial improvement.

The warning comes amid mounting concern that official readings of the Chinese economy are being manipulated more than usual in Beijing’s haste to declare the country the first leading economy to emerge from the global crisis.

The monthly output of Beijing’s National Bureau of Statistics (NBS) has long been treated gingerly by foreign China-watchers, and in some cases with outright scepticism. GDP figures tend to be “smoothed†at the turning-points, said one senior economist.

But doubts are also now being voiced domestically. Particularly strange is the deepening division between the sum of the GDP growth rates in the individual regions and the official figure for the country produced by the statisticians in Beijing, say observers.

An online poll conducted by a Chinese newspaper found that nearly 90 per cent doubted official figures on average urban wage growth this year, while the state-controlled China Daily found that a similar number were generally dubious about the credibility of official data. Others have questioned whether the NBS is even equipped with the resources to survey such a huge country and population as quickly as it seems able to do each month.

For those reasons, investors have increasingly turned to electricity generation numbers as their prime guide: the figures are drawn directly from the power plants, they are accurately measurable and they seem pleasingly difficult for the Government to manipulate.

The recent trend on electricity generation does seem appears to confirm the impression that China is booming again and the recovery resilient in the real economy: power growth rose 4.28 per cent year-on-year in July, which suggests things are starting to hum again.

But the conclusion could be wrong, say analysts. Glenn Maguire, chief china economist at Societe Generale, described himself as “not a fan†of electricity numbers as a gauge because they are “overly distorted by what is happening in heavy industry.â€

Hmm can't think why anyone would want to manipulate the figures.

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