China’s electricity consumption shows growth at 4.5% and slowing

Economic growth

SHARE THIS STORY

China elec Mar14There’s a lot of wishful thinking underway about China’s future growth.  All the experts who told us that its growth was ‘inevitable’ and would never end, are now having to face the issue that clearly growth is now slowing fast.

Their response, of course, is to remain in Denial mode.  They imagine that a magic wand will soon be waved to restore growth by yet another $trillion stimulus package.  They simply cannot envisage a world in which China effectively went bankrupt.

But, of course, countries can and do go bankrupt if they can’t pay their debts.  It just takes rather longer for them to run out of options.  But as the blog described in last month’s Research Note, China is now very close to the end of the road with its $10tn+ lending bubble.

China’s new leadership appear to have recognised this reality.  Certainly their new policies are the opposite of stimulus.  And they give no sign of being about to reverse course at the first sign of trouble.  Those hoping for a H2 recovery may therefore end up being very disappointed.

Though few have yet recognised it, China’s Bear Stearns moment took place last week with the $400m default of Zhejiang Xingrun Real Estate Co.  Just as forecast in the Research Note, there was no panic in official circles.  Instead Premier Li Keqiang confirmed more defaults would follow.

The problem for the experts is that they have grown used to following GDP estimates.  But these are fundamentally flawed as an indicator.  As the blog noted in December 2010, then vice-premier Li ‘told the US ambassador that the GDP figure, for example, is “man-made and therefore unreliable“’.

Li suggested that a more accurate view of growth came from electricity consumption and lending levels – the 2 areas on which the blog has always focused.  And new data for January/February electricity consumption provides further evidence that a major slowdown is underway, as the chart shows:

  • Consumption rose just 4.5% in the 2 months combined (this avoids the issue of adjusting for Lunar New Year)
  • Growth was 1 per cent less than the 5.5% seen in the January/February 2013 period
  • Consumption growth since January 2009 seems likely to have peaked last September, when it was up 186%

As state news agency Xinhua commented:

The slowdown was mainly attributed to sluggish industrial power use, which accounted for around 70% of the country’s total consumption, especially high energy-consuming industries like iron and steel, cement and petrochemicals”.

Lower consumption growth, and perhaps even lower absolute consumption, is almost inevitable.  The reason is that 79% of its electricity production comes from coal-fired power stations – almost double the global average.  And coal is one of the major causes of China’s current pollution crisis.

So it seems likely that part of the new strategy will be to take advantage of slowing growth to close some of the worst-polluting stations, along with iron, steel and other factories that contribute to the problem.  Zero GDP growth for a period between now and 2018 should thus be a Base Case for anyone doing business in China.

Of course, the experts will still argue that another stimulus will come along and ‘kick the can along the road’ to enable further growth.  But this argument fails to recognise that at some point, a road can run out.  Far better to stop today, than disappear over the edge in a year or two’s time.

Benchmark product price movements since January 2013 are below, with ICIS pricing comments:
PTA China, down 27%. “The average operating rates of PTA plants in China stood at 65-68% for March, and are expected to decline to 57% for April”
Benzene, Europe, down 6%. “A raft of benzene and pygas exports out of the region in February was keeping availability balanced overall”
Brent crude oil, down 5%
Naphtha Europe, down 2%. “The naphtha arbitrage window to Asia has opened after weeks, giving European traders an opportunity to once again book cargoes to the region”
US$: yen, up 16%
HDPE US exportup 22%.  “Producers maintaining price positions, but with prices unworkable in the global market,”
S&P 500 stock market index, up 27%

PREVIOUS POST

Cotton prices slip as US supply rises and China's imports fall

21/03/2014

It seems that cotton prices are about to return to normal levels again.  The b...

Learn more
NEXT POST

Demographics drive demand and fertility rates have fallen

25/03/2014

A major debate is underway in Eurozone financial markets about the imminent appr...

Learn more
More posts
‘Watch out below!’ as supply chain chaos comes to an end
14/11/2021

“What goes up, comes down” is usually a good motto when prices start to reach for the sk...

Read
Industry now needs to step up, if Net Zero is to be achieved
31/10/2021

Net Zero is clearly the key issue of our time. With COP26 about to start, 3 key elements need to com...

Read
The Fed’s stock market bubble is at risk as China bursts its real estate bubble
24/10/2021

The US stock market bubble just keeps rising. And every investor “knows” that the US Fed...

Read
EU patience starts to run out as UK threatens to break the N Ireland Protocol
17/10/2021

Unsurprisingly, it turns out that Brexit still isn’t “oven-ready”, despite the UK ...

Read
An end to the China bubble would risk a Minsky moment
05/10/2021

My letter in today’s Financial Times warning of the risk to Western financial markets from the bur...

Read
Xi aims to “bring order out of chaos” by bursting China’s property bubble
03/10/2021

China is at the start of its biggest economic shake-up since 1978, when Deng Xiaoping launched his p...

Read
Housing markets face long-term downturn as central banks abandon stimulus
05/09/2021

Last month saw the beginning of the end for the central banks’ 20-year experiment with stimulu...

Read
Businesses set for transformation as supply chain chaos combines with Net Zero targets
15/08/2021

‘Business as usual’ seems a most unlikely outcome as we look forward over the next 6 months....

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more