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.
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.
Since the start of the year, Chinese aluminium smelting has been extremely weak because buyers were able to source the metal from abroad for less than they could find at home. With aluminium prices climbing back to nine-month highs, that arbitrage opportunity is disappearing. That has prompted Chinese aluminium producers to fire up their electricity-ravenous plants once again, and with them the spike in the charts. Because commodity analysts believe that underlying Chinese aluminium stocks are relatively high, the reactivation of production capacity may prove a short-lived phenomenon.
I have seen some blogs rely on the power consumption figure, certainly as commodity prices were slumping while the boom declined this made sense. However, with commodity prices rising this figure becomes less reliable, and I guess that means we’re back to square one statistics-wise.
So that begs the question…if you can’t trust the official statistics, or the defacto ones, then just what is a Western investor with little on-the-ground knowledge to do? Is it perhaps time for a little of this?: