Today’s China Readings June 24, 2012

Saturday’s New York Times has a very worrisome article about data fabrication and China’s economic slowdown. Keith Bradsher writes in Chinese Data Said to Be Manipulated, Understating Slowdown that:

Record-setting mountains of excess coal have accumulated at the country’s biggest storage areas because power plants are burning less coal in the face of tumbling electricity demand. But local and provincial government officials have forced plant managers not to report to Beijing the full extent of the slowdown, power sector executives said…a survey of Chinese manufacturing purchasing managers, released on Thursday by HSBC and Markit and conducted independently of the government, gave the second-gloomiest reading for their businesses since March 2009. Only November of last year was worse, when many small and medium-size businesses faced a brief but severe credit squeeze.

How much of this is already known by the “smart money” who through their own research and use of expert consultants would frequently learn about such developments before the mainstream media, and therefore it is at least partially priced in? And if China’s economy has slowed much more than most believe, as Xinhua’s Saturday reports China’s cement output growth rate drops sharply and China crude steel sector grows slower, profits down also suggest, are we closer to the serious unrest some predict will occur in a major slowdown, or is society more stable, or stability better “maintained”, than some think?

In mid-June the NDRC tried to spin a silver lining for part of this story, as China Daily reported June 14 in Coal stocks hit record, easing summer crunch:

Record high coal stocks coupled with falling demand by secondary industries including mining, manufacturing and construction, will cut the danger of power shortages this summer, according to the National Development and Reform Commission…

Releasing figures which showed May power use in Shanghai and the provinces of Hubei and Jiangxi all fell, and power use in six cities and provinces including Chongqing, Liaoning, Jilin, Zhejiang, and Gansu increased by less than 3 percent, Lu Junling, a deputy inspector at NDRC, said compared with previous years, this year’s expected electricity deficit will be much lower, although it could still grow under extreme weather conditions.

The power generation market is distorted by government regulation, as Bloomberg explained last December in China Lifts Electricity Prices, Caps Coal Costs Amid Power Profit Squeeze. Foreign power firms once thought China was the promised land. Now all but one have quit the country, as China Dialogue reported in May in Unplugging from China.

In spite of the slowdown, interest in real estate appears to be surging in places again. First Financial Daily reports (via WantChinaTimes) that “leading developers rushed to throw 8.5 billion yuan (US$1.3 billion) into the market to purchase land over a period of three days”. Guangzhou saw huge lines of people trying to buy apartments in new projects released this holiday weekend–广州楼市再现“抢房”大战_市场动态.

Beijing succeeded in temporarily damping expectations of real estate price rises, but between rumors of policy loosening, cancellation of many discounts offered by developers in response to the frozen market, and real, repressed demand for housing, the government now appears to be fighting a losing battle against consumer expectations.

Those wondering why predictions about China are so often wrong should read Political Scientists Are Lousy Forecasters in this Sunday’s New York Times. China is not mentioned, but the USSR example may be relevant:

It’s an open secret in my discipline: in terms of accurate political predictions (the field’s benchmark for what counts as science), my colleagues have failed spectacularly and wasted colossal amounts of time and money. The most obvious example may be political scientists’ insistence, during the cold war, that the Soviet Union would persist as a nuclear threat to the United States. In 1993, in the journal International Security, for example, the cold war historian John Lewis Gaddis wrote that the demise of the Soviet Union was “of such importance that no approach to the study of international relations claiming both foresight and competence should have failed to see it coming.” And yet, he noted, “None actually did so.” Careers were made, prizes awarded and millions of research dollars distributed to international relations experts, even though Nancy Reagan’s astrologer may have had superior forecasting skills.

The New York Times article references Karl Popper. Does this apply equally to economists?

These results wouldn’t surprise the guru of the scientific method, Karl Popper, whose 1934 book “The Logic of Scientific Discovery” remains the cornerstone of the scientific method. Yet Mr. Popper himself scoffed at the pretensions of the social sciences: “Long-term prophecies can be derived from scientific conditional predictions only if they apply to systems which can be described as well-isolated, stationary, and recurrent. These systems are very rare in nature; and modern society is not one of them.”

Modern China is also definitely not one of them.

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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.

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