Jun

26

Last night (very late) I put down my reading and turned to Book TV. The weekend interviews and presentations are usually fairly interesting and highly partisan - generally speaking, both sides are given significant representation. I just happened to catch the middle and end portions of a presentation given by one Dambisa Moyo. She was talking about her latest book, Winner Take All.

It's an overview of China's methods and actions in acquiring the resources it feels will be necessary in the near and very distant future. Its investment rationale, unlike those we're familiar with, have nothing to do with discounted cash flow models, but with perceived need. As a result it will purchase whatever it wants at prices that may seem outrageously high. The government's only concern is remaining in power and that it will do anything to do so. This includes cooking the books, manipulating the currency, and over-building just to keep the labor force content.

Her views are remarkably different from this I hear from either the China bulls or bears. Simply put, the Chinese leadership cares nothing about Western investment models or practices — it does whatever is necessary to secure its future access to vital resources - and, unlike many of our policies, to do so in the least intrusive way, with many carrots and few sticks.

This is a very bright, literate woman who gives a great presentation and, I believe, some fresh insights into the world's most interesting country.

Her website is dambisamoyo.com

You can check your cable listings for her current interview which, as I recall, was recorded on 6/24

While these types of allegations have certainly been made in the past, does anyone close to China have any thoughts on this? Leo?

From the NYT :

As the Chinese economy continues to sputter, prominent corporate executives in China and Western economists say there is evidence that local and provincial officials are falsifying economic statistics to disguise the true depth of the troubles. 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. Electricity production and consumption have been considered a telltale sign of a wide variety of economic activity. They are widely viewed by foreign investors and even some Chinese officials as the gold standard for measuring what is really happening in the country's economy, because the gathering and reporting of data in China is not considered as reliable as it is in many countries.

Indeed, officials in some cities and provinces are also overstating economic output, corporate revenue, corporate profits and tax receipts, the corporate executives and economists said. The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist.

The executives and economists roughly estimated that the effect of the inaccurate statistics was to falsely inflate a variety of economic indicators by 1 or 2 percentage points. That may be enough to make very bad economic news look merely bad. The executives and economists requested anonymity for fear of jeopardizing their relationship with the Chinese authorities, on whom they depend for data and business deals.

The National Bureau of Statistics, the government agency in Beijing that compiles most of the country's economic statistics, denied that economic data had been overstated."This is not rooted in evidence," an agency spokeswoman said.

Carder Dimitroff comments:

I would not focus on one commodity. Coal in China is a complex issue. I believe many coal-fired power plants are running on the margin, and many are privately owned (AES, for one). When a power plant is on the margin, there is no gross margin. No private owner will operate in the face of negative gross margins, so units with high production costs (fuel cost and heat rate) sit idle until prices return.

Coal is on one leg of the dark spread, the consumer is on the other. My understanding is the government placed a cap on electricity prices. I understand they want to curb inflation and keep electricity prices low. That cap keeps the dark spread compressed. Leo may be able to provide insight in this area.

However, I think the overall conclusions might be correct. While I'm an amateur in Chinese economics, I did research publicly traded utilities and found implausible balance sheets. If you believe their quick ratios, the should have been out of business years ago. Colleagues warned that the numbers were meaningless.

I've worked with a number of project developers that were either working on projects in China or were using Chinese money for foreign investments. They warned that Chinese investors don't always care about pro formas and they will buy into projects that others might shun.

One example is their huge investment in new nuclear power plants. It's impressive, it's aggressive and it makes no economic sense if anyone looks at the levelized costs. However, if only production costs are analyzed, nuclear makes a lot of sense. This is confirmation the Chinese are in fact ignoring capital costs to achieve an altered goal.

Others may be in a better position to comment, but overall China's economy seems to be struggling. Combining the coal situation with oil, iron ore, copper, it seems like a slowdown.


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