Uncover the Secret of the Fighting among China’s Macroeconomic Data Part I 09-07-2016

“In the recent years, China’s economic data have boldly diverged, and thus it turned to be more and more difficult to estimate the running condition of macro economy. Under the background of the ongoing policies that designed for stabilizing growth, how to explain the all-the-way investment downturn and data divergence?”


Source: Internet

Recently, China’s economy faced a bold data divergence, which made it more difficult to estimate the running condition of macro economy. For example, the main macroeconomic data of July showed a wide depression and at the same time kept declining, however, in August, the official PMI of manufacturing industry was 50.4 in August, which was a record high in the previous 22 months and showed a positive sign for economic growth, moreover, the hugely increasing industrial enterprises profits and electricity output in July strongly contrasted with the depressed industrial production and reducing investment.


The profit of industrial enterprises above the designated size year-on-year increased by 11% in July, 5.9 percentage point faster in terms of growth rate than that of June. The year-on-year growth rate of the output of electricity generating increased from 2.1% in June to 7.2% in July, but at the same time, the industrial added value above the designated size increased by 6%, which was 0.2 percentage point lower than that of June. Moreover, the investment on the fixed assets decreased to 8.1% during January to July, which was 0.9 percentage point lower than that of the period ranged from January to June. Under the ongoing policies that aimed to stabilize the growth, it’s noteworthy that the investment has all the way declined and the data have diverged.


What’s the logic chain behind all those layers of mist? Would the economic situation be stabilized or kept in the downturn?


The Divergence between the Reduction on the Industrial Production and the Improvement on the Output of Electricity and Profits


One aspect that worth paying attention to was the mystery of the divergence among the reducing industrial added value, strong generating capacity, and increasing profit. According to statistics, the industrial added value above the designated size increased by 6%, which was 0.2 percentage point lower than that of June. However, the profit of industrial enterprises above the designated size increased by 11% year-on-year in July, which, accelerated by 5.9 percentage point than that of June, created a record high in the previous four months. The output of electricity and power consumption hugely increased in July: the year-on-year growth of the former increased from 2.1% of June to 7.2% and of the latter increased from 2.6% in June to 8.2%.

                                       Graph 1: Divergence between the Industrial Production and Generating Capacity


Industrial Added Value  Generating Capacity (right axis)


Generally speaking, there’s a strong positive correlation between the generated energy and industrial production, and thus it’s really abnormal about this divergence. The Statistical Bureau offered three reasons for this phenomenon: first of all, the increasing electricity consumption due to the high temperature, secondly, the short-term adverse effect on the industrial production caused by the flood disaster; thirdly, the low cardinal number of the industrial electricity consumption. However, the three reasons above were not solid enough as they still diverged from the statistics.


About the first reason, of course the high temperature would greatly influence the residential electricity consumption and the consumption of service industry, and thus the year-on-year growth rate of the residential electricity consumption in the urban and rural areas increased from 5.4% of June to 9.6% of July, and that number of the service sector increased from 8% of June to 15.3% of July. As the electricity consumption of the residents and service sector only accounted for 25.6% of the total electricity consumption, the increasing electricity consumption of the residents and service sector due to the high temperature just contributed 1.5 percentage point to the increasing electricity from the overall perspective.


Some views believed that the high temperature also has been one of the factors that drove up the electricity consumption in the secondary industry, for example, the year-on-year growth rate of the electricity consumption in the secondary industry increased from 1.4% of June to 6.9%, among which the growth of the industrial electricity accelerated from 1.4% to 6.9% and the manufacturing industry increased from 0.5% to 4.9%. But from author’s point of view, it’s not reasonable to attribute the increasing electricity consumption of the secondary industry to the high temperature: the July of 2010 used to be the hottest in the same period of the recent years, but the year-on-year growth rate of the July of 2010 slowed down from 15.8% of June to 15.4%, among which the industrial electricity consumption growth reduced from 15.7% to 15.4% and the consumption of the manufacturing industry declined from 19.8% to 15.7%.


As for the second reason, we can find that the damage caused by the disaster in each province were not exactly matched with the slowing down industrial production. For example, according to the report analyzing the disaster condition of July released by Ministry of Civil Affairs, provinces of Hebei, Hubei, Anhui, and Henan were heavily suffered from disasters, while the industrial growth of all those four provinces were 5.1%, 8.3%, 7.7% and 7.6% respectively, which, respectively were 0.1, 0, 1.4 and 0.6 percentage point lower than that of June, can be seen as a slight reduction. And in some areas that suffered disasters, like Hunan, Guizhou, Jiangxi, Jilin, Beijing, and Sichuang, the growth of the industrial added value in July was even higher than that of June. Provinces with the highest reduction were not influenced by the disaster, for example, the industrial added value of Xinjiang, Xizang, and Hainan were respectively decreased by 7, 4.5 and 2.6 percentage point, which cannot be explained by the side effect of flood disaster.


The third reason was cardinal number effect. According to the statistics of Statistical Bureau, the output of electricity of July last year decreased by 2.02% year-on-year, but the author remained suspicious whether the flat cardinal number last year caused the remarkable increase of the output of July this year? According to Statistical Bureau, in July 2015, the output of electricity was 509 billion kilowatt-hour, while in the same period of 2014, the output was 505 billion kilowatt-hour, based on these two set of statistics we can get a year-on-year growth of 0.8%, rather than the -2.02% released in the previous period. With the statistics of no transparency, people would inevitably doubt about the explanation of cardinal number effect.


Moreover, according to the industry data, among all those 27 sectors, 18 of which enjoyed an increasing growth rate of industrial added value, the emerging products of consumption upgrading were prosperous in both production and sales. For example, in January to July, the year-on-year growth of new energy automobile, SUV, carbon fiber reinforced composite, solar battery, industrial robot, mobile phone, and optical fiber were 94.6%, 37.7%, 36.7%, 26.4%, 27.2%, 23.8%, and 31.3% respectively. At the same time the high-value-added industries have also been in good prospect. From January to July, the year-on-year growth of the manufacturing of radar and its accessory equipment, tramway, and aerospace vehicle and its accessory equipment, nuclear radiation processing, communication device manufacturing, nuclear fuel processing, and battery manufacturing were 61.5%, 39%, 24.2%, 18.8%, 18.5%, 16.1% and 16% respectively.

*The article is edited and translated by CCM. The original one comes from Laohucaijing.com.

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