China has been building what is by now the largest high-speed rail system in the world. Subway systems are growing faster than anyone can imagine anywhere else. Ridership is soaring. High-rise buildings are sprouting up like mushrooms, to be occupied by businesses and consumers that are splurging on tech products, appliances, and air conditioning. All powered by electricity.
China built over 23 million cars, trucks, and buses last year, far more than any other country, in plants that are massive consumers of electricity. It’s producing building materials, solar panels, trains, ships, plastic trinkets, smartphones, and a million other things for its own use and for the rest of the world. All these activities require a lot of electrical power.
China is booming. GDP for the second quarter, despite rumors of a slowdown, came in at a once again astonishing annual rate of 7.0%, just as planned, once again confounding hard-landing gurus. Nothing is going to slow down China. It’s fueled by monetary propellants, endless credit that never turns bad and never has to be paid off, and a stock market run by fiat. So it would seem that electricity consumption would be soaring in parallel.
Electricity consumption in the first half of 2015 inched up to 2,662.4 billion kWh across the country. Compared to the same period last year, that was up a tiny 1.3%. The flimsiest growth rate in 30 years.
In 19 provinces, power consumption grew at above the national average of 1.3% compared to prior year, the People’s Daily Online reported, based on a brief by the China Electricity Council; but in 9 provinces, power consumption during the first half actually fell.
While electricity consumption in light industry rose by 2.1%, it dropped 0.5% in secondary industry and 0.9% in heavy industry.
So was the economy of China suddenly not growing at an annual rate of 7% during the first half?
The government has assured us: the GDP growth rate, stunning as it might appear, is unassailable. Instead we’re witnessing the transition from a manufacturing economy to a service economy, a transition that instead of transpiring over decades is happening suddenly, measurable in months and quarters, as if emboldened by the stock market bubble, its subsequent crash, and the current iron-fisted government rule over the markets and investors.
Perhaps Chinese manufacturers are switching to finance as an easier way of extracting money from “fresh leeks” (新韭菜), as inexperienced stock-market players (the teachers, farmers, and street vendors) are called, because they’re “abundant” and “destined for chopping” [read… Why I Don’t Short Stocks or Bonds in this Crazy Environment Where Nearly All Assets Are Overpriced].
But reality doesn’t cease to intrude, as exemplified by China’s giant industry of auto manufacturing, a battle ground hotly disputed by all global automakers, led by GM and VW Group, and dozens of Chinese manufactures that together produced over 23 million vehicles last year, and were expected to exceed that number this year by a good margin though that looks increasingly doubtful, given the 3.4% decline in passenger vehicle sales in June, after relentlessly dwindling growth in the prior months, despite heavy discounting by some manufacturers. VW Group sales plunged nearly 17%!
Automakers have been adding new plants and expanding the capacity of existing plants at a feverish pace, to supply a market that has grown in the double digits for years. They’ve powered it from being a backwater to being the largest market in the world over the course of a decade. And suddenly that wondrous market is turning on them.
Average capacity utilization for global brands has fallen to 94% in the first half, from the supply constrained conditions of yore that implied 100% utilization, according to Sanford C. Bernstein analysts cited by Bloomberg. The report explained that “2015 will be remembered as a turning point in industry capacity utilization.”
The auto industry isn’t the only industry to feel the pressures of sudden overcapacity after years of phenomenal growth. Other industries have been suffering from it for years. When overcapacity meets sluggish or declining demand, all kinds of economic activities begin to stumble. And along with them, the consumption of electrical power that makes it all work.
The implications are already showing up in the broader scenario beyond China. Read… World Trade Drops Most Since Financial Crisis
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