China’s economy appears on the verge of turning around, even Roubini admits. Recent government data and prognosis certainly point to that. Let’s not forget that the Chinese government controls a lot of this info. Electricity output, seen as a proxy for industrial activity, is a “real” number that we can rely on and although it has improved lately, more recent data suggest continued caution before jumping to an all clear call on China. The chart is from CLSA and its last data point is March. The update is from Na Liu who closely follows China for Scotia Capital.
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Electricity Output Still Sluggish
? As we have pointed out repeatedly, electricity output is a key concurrent indicator of the
strength of near-term industrial activities in China. In the second half of March, China’s
power output was not as strong as it was in the first half, resulting in a 1.3% YOY drop of power output in March overall.
? This sluggish electricity production continued in April. Nationwide, electricity supplied via major grids fell 3.57% YOY during the first ten days this month, compared with decline of 1.3%, 2.2%, and 2.7% in the first, second, and third ten-day periods of March, according to the National Electricity Dispatching and Communication Centre, a unit of the State Grid.
? Although we do not read too much into one data point, as electricity output is also heavily
influenced by weather conditions, we do note that the sluggish output does not confirm the
reported strength in IP and FAI growth. Similarly, the steel price in China, another key
indicator, remains under pressure and does not point to strong construction activities overall.
These are the two disconcerting signals from the real economy which run against the strong
macroeconomic data and which commodity bulls (us included) should be aware of. On the
positive side, however, we note that China reported some small drawdown of steel
inventories in the past two weeks and the freight market begins to recover slightly.
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