Thursday, January 22, 2009

Power Consumption a More Accurate Proxy of China Economic Activity

Some analysts see power consumption as a more accurate proxy of economic activity than GDP releases. Consider then the following report from Bloomberg on January 12: Power consumption fell 4 percent in October from a year earlier, the first decline since March 2005, and 9.6 percent in November, according to state data. The government has yet to release December figures. Now there is a discretionary element in power usage, and formerly profligate users can suddenly start belt-tightening. And since energy in China is subsidized, there were not strong incentives to curtail use in when oil prices spiked in the first half of 2008. So it is not unreasonable to think power consumption could decline faster than economic activity. Yves Smith

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