Today’s China Readings July 8, 2012

It was 104 degress in DC today with a a code red air quality advisory. Funny, it looked like a blue sky day to me. The Asia Society has built a useful site that documents pollution in major Chinese cities. ChinaAirDaily is the place to see Chinese air pollution without actually having to breathe it.

Remember the New York Times article accusing some Chinese officials of fabricating power usage data, and the response from prominent sell-side analysts who argued that the New York Times report was inaccurate?

Caixin, which is generally very bearish on China’s economy, is out with a piece looking at electricity usage, coal stockpiles and the economic slowdown—何解煤电低迷_杂志频道, with an abridged translation titled Powering Down Coal-Fired Economic Expansion.

The main point of the Caixin story is that while slowing electricity demand and growing mountains of coal do indicate a slowdown, analysts may be overemphasizing those two data points in their economic models as manufacturing is becoming more energy efficient and the economy is undergoing a structural change away from heavy industry growth to service-sector growth:

On a broader scale, analysts generally agree that the economy’s slowing growth rate has contributed to declining power and coal consumption growth.

Han Xiaoping, chief information officer for the power industry data portal China5e.com, told Caixin that electricity consumption trends historically reflect short-term changes in the Chinese economy. And those trends are pointing to several structural adjustments.

For years, China’s industrial structure has been heavily reliant on power-hungry businesses including steelmaking, non-ferrous metal and chemicals production, and construction materials manufacturing. Strong growth in each of these sectors factored into soaring power consumption over the past decade, said Zhang Long, chief electricity analyst at Essence Securities.

But now, China’s economy is shifting toward service-sector growth and away from heavy industry expansion. For that reason, non-residential demand for electricity has grown much faster in the service sector than in manufacturing, steelmaking, cement production and the like.

Power consumption in the service sector grew 12.4 percent in the January-May period, said NEA, compared to 3.8 percent  in the industrial sector overall and around 1.4 percent among major power-consuming industries. And while the industrial sector accounts for 73 percent of all non-residential power demand, NEA said, it now accounts for only 47 percent of gross domestic product.

Moreover, light manufacturing growth has been outpacing heavy industry expansion during the first five months this year for the first time since 1999, said Li Xunwei, chief economist at Haitong Securities.

Change is also affecting the power industry’s supply structure thanks to, for example, heavier use of hydroelectric plants. NEA expects an increased emphasis on hydropower and other non-coal sources of electricity to reduce power plant demand for coal by about 8 million tons this year.

Indeed, coal-fired power plant generating capacity fell 1.5 percent in May from the same month 2011. Meanwhile, nationwide hydropower generating capacity grew 31 percent in May over the same period 2011 and 52 percent over April’s level.

So is electricity consumption no longer the reliable proxy for Chinese economic activity that it once was?

The best way to read this blog is to subscribe by email, especially if you are in China, as Sinocism is still mostly blocked by the GFW. The email signup page is here, outside the GFW. You can also follow me on @niubi or Sina Weibo @billbishop. Comments/tips/suggestions/donations are welcome, and feel free to forward/recommend to friends. Thanks for reading.

The best way to read this blog is to subscribe by email, especially if you are in China, as Sinocism is still mostly blocked by the GFW. The email signup page is here, outside the GFW. You can also follow me on @niubi or Sina Weibo @billbishop. Comments/tips/suggestions/donations are welcome, and feel free to forward/recommend to friends. Thanks for reading.

Digest powered by RSS Digest

Subscribe to the Free Sinocism China Newsletter! Enter Your Email In The Box Below And Start Getting Smarter About China.