Samstag, 18. April 2009

Still More on China's GDP Data

Somehow, I am unable to let this topic go...

Yesterday's FT had a few articles devoted to discussing China's GDP release and the overall state of the economy. Some interesting bits:

- The spokesman of Statistics China was asked to explain the discrepancy between falling electricity use (industrial use was down 8.4 %) and rising industrial productino (up 5.1 % overall, with rising production reported for both light and heavy industry). Quote: "Mr. Li said he had no explanation ... but insisted that both figures were accurate and the issue required further study." No explanations, huh? I remember reading an article some months ago, where a Chinese official said that those postulating a connection between electricity use and industrial production have no clue how the Chinese economy works. Of course he had "no explanations" either.

- The FT states that "rapid cooling in the Chinese economy has been led by a collapse in ... private-sector investment". It goes on to say "there is still little evidence of new private-sector investment". No numbers are quoted, so I suppose the FT is conjecturing based on anecdotal evidence. Stil, if the assumption is true (and it sure sounds plausible to me), there is an interesting implication: If overall investments grew 29 %, and private investments dropped, doesn't that mean that state-led investments must have grown much much faster than 29 %? Actually, there are some official numbers: According to Statistics China, "state-owned and state-controlled investments" grew at 35.6 % in Jan/Feb (compared to 26.5 % overall investment growth in Jan/Feb; March not yet available). They don't tell us about private investments, but assuming that private investment is all the rest (which should be the case by definition), that still implies 20 % growth for private investments. "Collapsing private investments", as the FT puts it? Hardly! And we are also told that "housing" and "development of real estate" were stagnating (growth of 3 % and 1 %), so "non-real estate related private investment" must have grown much faster than 20 %.

- According to the FT, "the bulk of the increase came from government-supported infrastructure projects". Again, I wonder how the FT knows that? As backup, it is stated that "government investment in railways more than tripled from a year ago in the first two months". While this sounds impressive, here's the thing: In Jan/Feb, investments in "railway transport" accounted for 3.3 % of all investments. And the growth in railway investment contributed 1.4 % of total investment growth in Jan/Feb. So sure, they splurged on railroads. But that explains... 1.4 %. No, not 1.4 percentage points of 26.5 % total investment growth. I mean 1.4 per cent, as in: 1.4 % * 26.5 % = 0.3 percentage points. In other words, it is totally immaterial.

- So where did all that investment growth come from? The total transport sector did contribute heavily, as lots of money was spent on roads and urban transport (read: subways) as well. But in total, investments in the transport sector accounted for only 12 % of Jan/Feb investments. The real biggie is the manufacturing sector with 30 %. And manufacturing investments grew at 25.4 %, nearly as fast as investments overall (26.5 % in Jan/Feb). And which manufacturing companies did the investing? Turns out nearly everybody, but in particular machinery makers, chemical products, metal products and "non-metallic mineral products". Interesting, isn't it? Industrial production is barely growing. Normally, you'd expect manufacturing companies to invest less. Yet they are investing like crazy. No idea what they are investing in: Can't be manufactured products (machines, etc.), because production hasn't increased, and imports haven't increased either. So did they build lots of factory buildings in anticipation of future demand growth? I have no clue whatsoever.

- According to the FT, "fixed asset investment accounted for more than 40 % of Chinese GDP in 2008". That's a generous definition of "more than 40 %", because the exact number was 49.5%, i.e. 50 %. Assuming that 2009 investment growth is 29 % (in line with Q1), and the overall economy grows at 8 %, that would bring investments to 59 % of GDP. Doesn't sound plausible at all. So whatever happens, investment growth must come down going forward. And quite sharply.

- In a separate article (another page, but same day), the FT's Lex Column openly doubts that China is really experiencing rapid investment growth: Apparently, Komatsu (one of the world's biggest heavy machinery makers, producing the stuff you need to do big infrastructure projects) reported a 28 % decline in China sales in the month of March. Which again leads to the question: What exactly does all this explosive investment growth actually consist of? Or, as Lex puts it: "Any recovery will come with firmly Chinese characteristics." Yes, that's a good way to put it.

On a separate matter, Statistics China has now also issued a breakdown of retail sales. Turns out that "accommodation and catering" is also part of retail, and was up 18.9 %. "Wholesale and retail trade" was only up 14.6 %:

- Amazing that hotels and restaurants were booming so much: I understand that high-end hotels in Beijing, Shanghai and Guangdong have been largely empty over the last few months. Budget hotels were doing much better, but considering the price difference (a room in an "international 5 star hotel" can cost you 10 times as much as a "domestic good value hotel"), a drop in 5 star revenue should matter for the overall total. Does that mean that "normal" Chinese people were travelling and banqueting like crazy, to make up for the shortfall in the high-end segment? No idea. Note also that these broken down numbers are nominal, not real, so they include price reductions. In other words, even though high-end hotels slashed their prices (there are lots of press reports about empty hotels trying to lure guests with cutthroat room rates), and guests migrated from 5-star to budget hotels in large numbers, the overall nominal revenues were still up 19 %? Does that mean the number of guests was up 30-40 % year on year? It is simply impossible to believe this. But maybe restaurant revenues were up 30+ % to make up for lower hotel revenues? Hmmm. I vividly remember eating in eerily empty restaurants when I was in Shanghai in March...

- As for "wholesale and retail trade", Statistics China kindly provides a breakdown by category. They tell us how much is being spent on foodstuff, clothing, automobiles, commodities, household and video appliances, cosmetics, jewelry, cultural articles, sports articles, garments, grains and oils, petroleum products and communication appliances. Sounds quite exhaustive, right? Here's the thing: Overall sales growth was 14.6 %. All listed categories grew less than 14.6 % or even declined (some as much as -7.5 %), except for cosmectics (+14.8 %) and garments (+15.6 %). So how do we get to overall 14.6 % growth? Ah, maybe we need to remember the previous release, which for some reason told us that furniture sales were up 24 % and construction and decoration materials were up 20.2 % (these two categories were excluded in the detailed release). So I suppose furniture and construction materials can easily overcompensate the weakness of all other sectors. Never mind that furniture production didn't actually grow, and the real estate sector is in a slump (with one of the biggest DIY-chains recently deciding to close down half its stores due to large decline of revenues and unsustainable losses).

Conclusion? It's all rather... enigmatic.

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