Vitaliy N. Katsenelson writes:
I’ve said for a long time that one should not trust economic statistics data coming from the Chinese Government as it has the incentives (and power) to interrogate the data until it confesses to what it wants to see. Today we learned that industrial production in China rose 8.2% in October, a slowdown from 11.4% growth in September, and falling below expectations of 10.8%. So even though industrial production growth was not great, it was still growth and a fairly decent growth by the “developed” world standard. But there was another bit of news (in the same article) that really bothered me – volume of electricity generation dropped 4% in October – yes, it was a drop. So which number would you trust?
Maybe it is the pessimist in me, or maybe I’ve written so many “China will slowdown articles” that I am looking for data confirming my view (the confirmation bias) – that is possible, I am human after all. Or maybe I have a hard time imagining industrial production rising in high single digits while electricity generated declined during the same time period.
China may have some country specific innuendos that I may be missing being thousands of miles away, but unless proven otherwise I’d believe in decline not growth in the Chinese economy, especially when all the other numbers show decline as well: car inventories are at four year highs, real estate market (both commercial and residential) are overbuilt, government is coming up with a $600 billion stimulus package, unemployment is rising, demand from the developed world has slowed down etc…
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Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class at the University of Colorado at Denver. He is the author of “Active Value Investing: Making Money in Range-Bound Markets” (Wiley 2007).
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