June 15,2009

May's Statistics Paint a Very Confusing Picture

By CSC staff, Shanghai

Economic figures for China's merry month of May do not add up. It reads as the best month since the outbreak of the financial crisis according to investment and industrial growth, while from power generation and enterprises' deposits it seems to be a month of frustration.

Divergence between figures for industrial output and power consumption has gone on for months, and widened in May. According to National Bureau of Statistics data, fixed assets investment growth reached 38.9% and industrial growth 8.9% in May, highs in the recent 60 and 8 months, respectively, while power generation and exports dropped 3.55% and 24.7% and PPI was 7.2% down year on year.

The conflict is apparent in the real estate industry. In the first five months of this year, sales of residential commercial housing totaled 24,644 square meters in China, up 25.5%, year on year, and total sales income reached 1.1389 billion yuan, up 45.3%.

Now is a crucial moment to judge whether China's economic recovery curve will be V- or W-shaped, or some unknown shape. The contradiction among figures for loans, power generation, and industrial development throws all calculations into doubt.

Li Yang, director of the Institute of Finance & Banking of the Chinese Academy of Social Sciences, says that although investment growth in May seemed high, in fact, once bank loans were transferred to enterprises�accounts they were accounted for as investment, regardless of their actual use. "We believe banks and enterprises have done something to push up credit figures. This is a realistic judgment, for investment regardless of production capacity surplus and economic decline is not good for banks or enterprises."

Li Yang's judgment is supported by enterprises�deposit growth, which is higher than credit and investment growth. "Such a situation seldom occurs," he says.

Wang Jian, secretary general of MacroChina, an institute under the National Development and Reform Commission, said without a rebound in power consumption, the two-percentage-point month on month rebound in industrial growth in May is "not believable."

Wang Jian thinks the actual year-on-year industrial growth may be around 5%. "Power consumption grew by only 0.5% over the previous month, how can industrial growth be so high? There must be problems in the figures we are getting."

Earlier Shao Bingren, vice director of the Committee of Population, Resources and Environment of the NPC and former Vice-Chairman of the State Electricity Regulatory Commission, said figures from some areas are very likely not reliable.

Yuan Minggang, an expert with Centre for China in the World Economics (CCWE), Tsinghua University, estimates actual industrial growth at less than 5%. "There will be a gap between power consumption and economic growth, and it usually lies at about 2 to 3 percentage points in other countries. In China it stands at as high as over 10 percentage points, which never occurs in any other countries."

Li Yang said China's top leaders were very cautious in judging the current economic situation during several recent meetings. Although the 4 trillion yuan stimulus package immediately boosted economic growth, the recover of the whole economy still needs investment from enterprises and individuals.

China's non-governmental investment was actually down 3.3% in the first quarter. Investment from foreign invested and private enterprises has dropped quickly. Li Yang thinks currently private capital is still observing the economic situation and the government's macro-regulatory policies. "People are keeping a close eye on the situation in China and the US. They have doubts about the continuity of policy and the determination of the government. This will only change after the effectiveness of government policies is widely acknowledged."

"The present global recession may last for five years, though China may perk up earlier than other countries. However, before it is able to find new growth areas, it will have a difficult economic rebound. The whole process will be w-shaped," Li Yang says.

Some economists show optimism. Li Daokui, director of CCWE, thinks the strong growth indicated by figures in May is a sign of rebound. He thinks the crisis in a narrow sense is gone, and the whole world may recover to a quite high level in the next one to two years, and China’s economy will see a rapid growth in 2009 and 2010.


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