Chinese Growth Underpowered

Derek Scissors / January 07, 2009

In a few weeks, China will claim to have completed its economic survey and announce a growth rate for 2008. The only thing we know for certain is that figure won’t be accurate.

Today, the People’s Bank tipped growth of 9.3% for the year. The final official figure could be 9.1% or 9.4% but it will be close to that.

Today also brought a reason, courtesy of the official China Electricity Council, to think real economic growth was much lower. It put growth in power demand last year at only 5.2%.

Power demand numbers may not be entirely reliable, either, but we know something of the relation between official economic growth and power demand growth: in previous years, official power demand growth was much faster. It was 3.4 percentage points faster in 2007, 2.9 points faster in 2006, 3.6 points faster in 2005, and so on.

This year, however, we will be told economic growth is much faster than power demand growth. It’s certainly possible there was a change due to the global slowdown. But China is going to report economic growth only 2 percentage points lower than the blistering pace in 2007. That can hardly explain a full flip where power demand was considerably faster than the economy for years, but now is suddenly much slower.

The last time this happened was 1998, when China reported the Asian financial crisis caused power demand growth to drop to 2.8% while economic growth stayed at 7.8%. It is widely understood that true economic growth that year was far lower.

It’s 1998 all over again. True growth for 2008 won’t be clear even when all numbers are tallied, but our first glimpse says it was in the 7% range, at best.