China's growth in electricity consumption is a much better guide to its economic growth than the published GDP figures. This was confirmed by likely next premier, Li Keqiang. It has been a major reason for the blog's long-standing focus on this key area.
The problem with GDP is that it is a target for local Party members, not an output. As Li noted, it is for "guidance" only.
Thus GDP has been reported at ~10% since the stimulus programmes went into effect from Q4 2008. But as the chart shows, electricity consumption (blue line) has far outpaced this level of growth:
• It reached a record 435 kWh in July
• The January - July total was 15% above the 2010 level
• Similarly, Jan-July 2010 was 15% about the 2009 level
15% GDP growth would ring warning bells in any country. It would highlight potential overheating, and a rising risk of a banking crisis.
Exactly on cue, such worries are now emerging. As the Wall Street Journal reports, local government has been the main driver of the lending:
• Loans to local government for highways and other infrastructure projects are estimated at RMB14.4trn ($2.25trn)
• They represent a third of all loans in China
• Banks often received land as collateral for these loans
But for the past year, the central bank has worried about whether these loans will be repaid. It has pushed up reserve ratios, causing China's publicly traded banks to raise RMB 595bn ($93bn) of new capital.
But in turn, of course, this is making new loans harder to obtain, as the chart also shows (red column). So the credit bubble is beginning to burst. Bank of China, for example, recorded RMB 135bn of bad loans in H1, more than the RMB 123bn it reported for the whole of 2010.
Most analysts, of course, are convinced that China will avoid a banking crisis. But most analysts also failed to spot the US sub-prime crisis.