HSBC released its latest Purchasing Manager’s Index (PMI) this week and this index of manufacturer confidence and economic health hit a seven-month low. And just in case that news isn’t bad enough, the New York Times today reported that the economy may be even worse off than earlier believed as sources indicate more fake economic data in China.
While China’s government has already started pushing a limited stimulus package, these latest reports will raise still further questions as to how adequate these measures will be.
The HSBC Flash Purchasing Managers Index, which is the earliest monthly indicator of China’s industrial activity, fell to 48.1 in June from a level of 48.4 in May. A reading of below 50 is indicates contraction, and the current seven-month contraction streak matches the performance seen during the global financial crisis of 2008-09.
Adding to the fears of an economy headed for a hard landing, the Times’ report today quoted corporate executives and international economists accusing China of faking results for key industries, particularly electrical consumption.
As China’s figures on economic output, corporate revenue, corporate profits and tax receipts are already widely disregarded due to frequent political interference which distorts data, many economists track electricity use as a proxy for industrial output and general economic health.
Now a widening discrepancy between the official figures for power consumption and the amount of coal (which is the primary source of electricity generation in China) which is piling up in distribution centres, is fostering accusation of faked electricity data.
According to China’s National Bureau of Statistics, local and provincial governments (which often feel pressured to meet central government targets) have reported flat or even slightly rising electricity consumption in 2012 compared to 2011.
However, as cited in the Times report, 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, surpassing the previous record of 9.3 million tons, set in November 2008, near the bottom of the global financial downturn.
This possibility of fake data raises the possibility that one of the primary indicators used by economists and financial analysts may have been manipulated and thrown off many analyses of the economy this year.
Of course, if the government’s stimulus measures have their intended effect, none of this will matter, but given the limited nature of the growth package, there seems to be still more risk of China’s economic growth dipping lower than expected in 2012.