Chinese Economic Data is Questionable and Disconcerting to Investors
Questions have arisen regarding the economic data being released by Chinese officials. If Chinese economic data has been doctored, the three-year bull market in equities could be in peril. According to a report by Keith Bradsher of The Times of India, local and provincial officials in China have an incentive to make the economy appear better than it is.
According to Bradsher, “record-setting mountains of excess coal have accumulated at the country’s biggest storage areas because power plants are burning less coal in the face of tumbling electricity demand. But local and provincial government officials have forced plant managers not to report to Beijing the full extent of the slowdown, power sector executives said.”
Promotions for government officials in China are affected by economic statistics, according to Bradsher.
Reports such as this have put pressure on the stocks of commodity related companies:
Rohan Kendall, senior analyst for Asian coal at Wood Mackenzie, the global energy consulting firm, said coal stockpiled at Qinhuangdao port reached 9.5 million tons this month, as coal arrives on trains faster than needed by power plants in southern China. That surpasses the previous record of 9.3 million tons, set in November 2008, near the bottom of the global financial downturn.
However, emerging markets expert Mark Mobius of Templeton Mutual Funds, is not worried about a perceived economic slowdown in China and is more confident in the reported numbers.
SMA Comment: Coal companies have been in a severe bear market over the past several months which has been largely blamed on utilities converting power plants to natural gas and tighter emissions standards. However, Chinese electricity production may be an understated factor in their fall from grace. Investors have taken solace in the fact the Chinese have huge foreign exchange reserves, in excess of $3 trillion, which can be drawn upon to jump start their economy. However, investors need to be concerned how China’s export-oriented economy could be challenged by a global economic slowdown.
Source: The Times of India