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Industry accounts for 70 percent of all electricity consumption, and heavy industries, like
steel and aluminium, in turn account for much of this. Unlike some other analysts, we do
not interpret last year’s decline as indicating that the overall economic decline is in excess
of the official data, but rather as a specific retreat in heavy industry.
Similarly, we now take the rebound in electricity as an indication that these industries are
coming back. Their pause was most likely caused by the significant slowdown in fixed investment
from the middle of last year, and this movement was most likely exacerbated by a
sizeable inventory correction. Much of this correction now appears to be over, as indicated
by the rebound in imports.
Manufacturing
Electricity and auto sales
Source: Reuters Ecowin
How the stimulus works
The stimulus programme has also been met by another kind of scepticism, namely that the
items set aside in the government’s budget are too small and that the stimulation will be
short-lived. This scepticism may not be entirely unwarranted; but it also seems to be based
on some misunderstandings.
Bank lending
Foreign trade
Source: Reuters Ecowin
Plan working via regional
governments,
SOEs, and banks
Firstly, it is important to realise that the investment programme (as it is called in Beijing) does
not rely exclusively, or even primarily, on spending by the central government. Rather, in a
system that is still fairly centrally planned, it is enough for the central government to OK expansionary
plans by regional and local governments, as well as state-owned enterprises. Importantly,
the government exercises considerable control over bank lending volumes.
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