China Hard Landing Hits Electricity Consumption

Chairman of large power company slips, apparently.

OK, we’ve heard the official story. China is transitioning from a manufacturing economy to a consumption-based economy. Consumers are king. They’re going to buy stuff. And that’s going to heat up the economy.

Imports and exports have been plunging for months, but no big deal, Chinese consumers – and there are a lot of them – are going to pull the economy forward. That’s the official story.

So now we stumble on a report on the Facebook page of the People’s Daily, the official newspaper of the Chinese Communist Party. The report was helpfully in English. And it was a peculiar venue for a report on China: Facebook is still blocked in China.

So the fact the Communist Party rag published it in English and on a venue that is blocked in China makes it seem like this piece of information is not for the Chinese. Maybe it was slipped in by some underling over the weekend while supervisors weren’t paying attention.

That blurb reported that Qiao Baoping, chairman of state-controlled China Guodian Corp, one of the five largest power producers in China, spoke on Saturday at the China Development Forum about the overcapacity of electricity generation in China.

The China Development Forum is a huge deal. It’s organized by the State Council. Dozens of corporate chieftains from around the globe are there, as is IMF’s Christine Lagarde, and other power brokers. Among them is Facebook’s Mark Zuckerberg and Alibaba’s Jack Ma. They shared the stage on Saturday, as Digital Trends put it, “to lavish praise upon the business cultures of America and China.” It was that sort of event.

And then Qiao Baoping gave his speech on overcapacity of electricity generation in China. Among the things he said were these nuggets, according to the People’s Daily:

Qiao said that with the 15.1-trillion kilowatt power generators installed in China, the country now has an overcapacity of more than 20%.

That’s bad enough. It adds to the horrendous overcapacity problems that China has in other industries. Building overcapacity has inflated China’s GDP for years. Now it’s sitting there useless and loaded up with debts that are decomposing on or off the balance sheets of Chinese banks or shadow banks, and that can never be paid back.

But no matter. China will grow into it, right? Somehow, the economy would certainly grow at a rate of 6.5% to 7% in 2016. We know that. That’s what the government has mandated concerning GDP. The official growth rate last year was 6.9%, the slowest official rate in a quarter of a century.

But by most measures, a growth rate of 6.5% is still blistering. So electricity consumption would also grow to keep up with it, and soon the overcapacity problem would be gone. But no. The People’s Daily:

It is estimated that the power consumption nationwide will decrease this year, said Qiao Baoping.

And this surprising decrease in power consumption comes after a year when power consumption already fell. According to the National Bureau of Statistics, cited by the People’s Daily in somewhat lumpy English, “the total power capacity generated in China last year was 5.6 thousands of billions kilowatts [so maybe 5.6 billion megawatt hours], down 0.2% compared to 2014. This was the first fall in decades.”

So if that prediction – or fear – offered by the chairman of one of the largest power generators in China comes to pass, well then, here goes our dream of the soaring Chinese economy.

There’s simply no respite. Read…  China Ocean Freight Indices Plunge to Record Lows

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  36 comments for “China Hard Landing Hits Electricity Consumption

  1. Tom Belstler says:

    A drop in electricity consumption is generally indicative of a recessionary environment or at least an economy that is struggling. As for a 20% overcapacity, we are back to how one counts their gazintas and gazatas. Here is a link to one of the NERC regional capacity recommendations:

    Figuring out how much capacity is required to maintain stable and reliable power system operation is dependent on a whole bunch of variables, many of the local in nature.

  2. I never ever believed any of the statistics coming out of China and warned others not to believe them. Heck, I don’t believe anything OUR government has to say about our economy.

    • Jeff says:

      “Anyone claiming that America’s economy is in decline is peddling fiction.”



      • Fred_Flintstone says:

        When the USsA President has to TELL people this….then something is bad wrong.

    • peter says:

      I think this is wise. There is a concerted effort by a string of reserve banks, governments and politicians to spin this fiat currency chaos positively, the elite is working in international cahoots. So lies are what we are fed form morning to evening. Might as well sell the TV and stop the subscriptions, journalists are not what they used to be!
      I did, and I have never looked back!
      Think, act and make your own choices, but know that you are fed spin with an agenda.

  3. MC says:

    It may not surprise to know that Mr Baoping is pretty much repeating what came out of the latest Communist Party Congress: the official version is that China indeed has an overcapacity problem, but no problem about that since a plan has been initiated to curb that overcapacity.
    Again following closely the Party script, the contraction in electricity consumption is not only to be expected but welcomed, as the Party will shut down its less “energy efficient” steel mills, aluminum smelting plants, cement factories etc.
    While achieving all of this, Prime Minister Lee Kequiang also assured both Party members and the world China will meet GDP growth targets set for 2016.
    PM Kequiang’s speech was intended to serve two purposes: first to remind provincial governors and Party officials they “must” meet the growth targets set for their areas and second, to fool the usual gullible foreigners.

    The Chinese leadership has always been plesantly surprised of how the West, with all its analytical capabilities, guzzles down its cheap propaganda without questioning. They expected that, with the USSR under our eyes, we should have known better.
    Remember the days when Western newspapers breathlessly reported that the USSR had broken yet another record for cement production or how mortality in Soviet hospitals was nigh on inexistent? When the Iron Curtain came down, we discovered that cement production mostly existed on paper and that Soviet hospitals had the nice habit of turning away serious cases to avoid spoiling their statistics. Central planning was laid bare for everyone to see.
    We didn’t learn our lessons.

    We are still fascinated with central planning and want to desperately believe with just a few adjustments it will work. The blind faith in central banks and “militant” monetary and fiscal policies betrays this: if Moscow decided how much cement production should be increased under the next Five Year Plan and Beijing decides beforehand how much its GDP should grow for the year, we pick winners and losers seemingly on a whim. Right now our own Five Year Plan is based around two central concepts: that stock markets must only go up and that interest rates must only go down. If to achieve this savers, retirees, young couples etc must be flogged until the mood improves, so be it.

    • nick kelly says:

      I’ve criticized both CNBC and the BBC for parroting China’s 7-7-7- mantra and then fessing up to…6.9
      It’s not that I think these two agencies are mistaken- they must know these numbers are crazy with Chinese imports and exports down double digits.
      In the case of the BBC I think it was a case of the Brits sucking up to China i.e the CCP, especially during their famous sleep
      over a couple of months ago.
      Now that Britain has made a rare complaint under the ‘two-systems’ Hong Kong hand over, maybe the BBC will exhibit some of its famous skepticism.
      As for CNBC- maybe they’re just lazy or maybe they are just sell- side stock boosters like other posters keep telling me.

  4. Yoshua says:

    A Chinese supply side economy that has been dependent on American and European consumers until they went broke, is now turning towards Chinese consumers who make a bowl of rice a day… no wonder that the Chinese economy is booming and that the politburo members are smiling.

    • d says:

      You naughty boy.

      You have been reading those Pie charts, that show over 50% of Chinese workers earn less than US $ 2000.00 per Annum.

      They also show china has income inequality, that makes the US look Angelic.

      So wrightly you ask, where are the vast majority of these chinese consumers, to get the fund’s, or loans, to fund this chinese consumption based Economy.

      • Yoshua says:

        China Inc has made a nice profit for the elite and created a middle class on slave wages for the masses in the factories. The West has been more than happy to exploit this phenomenon.

        Today China Inc must make a technological breakthrough and create global brands to lift the economy to the top of the pyramid that is still dominated by the West.

        Will China Inc make it ?

        • Nicko says:

          Without democratic reforms? The odds are greatly stacked against the politburo.

  5. Jonathan says:

    Those Chinese “consumers” are doing so well that they are selling yuan for USD and emigrating to Western countries whenever they have the chance.

  6. Merlin says:

    China would seem to be a paper tiger, after all……..

  7. Ptb says:

    Seems like most people that have profited from chineses economic growth have left the building with their profits.

  8. Chicken says:

    That Carson Block guy opened my eyes concerning China, can’t rely on JPM or GS for letting truth slip out, they’ve been liquidating in China most likely?

    And our Congressmen/Senators, they were big investors during offshoring US industry, perhaps they’re also going elsewhere?

    Shouldn’t be too difficult for China to hit their CO2 reduction targets.

  9. nick kelly says:

    According to Bloomberg the transition is proceeding as the collapse of the export model is replaced by workers becoming: ‘baristas, barbers and baby sitters’
    I’m not making this up. If i was I’d do a better job.

  10. Alki47 says:

    I guarantee no one posting or writing here has been to China. You all have about as much knowledge about China as you do about aliens. People have been doubting Chinese economic data for decades. And during that time, the numbers are pretty close to reality and not wildly off base. And who believes the Labor unemployment numbers every month in America?

    Service economies do consume much less energy than manufacturing economies. An accounting company uses a fraction of the power as a cement plant. It seems like everyone is waiting for China to collapse, like America will somehow regain its past glory if China is taken down a notch. Not gonna happen!

    • NotSoSure says:

      I think a more apt description is that both are Ponzi economies. A commenter mentioned that only a transition to Democracy would allow China to transition to more value added goods.

      And America’s bartender and restaurant waiter powered recovery is obviously a great example of recovery!!!

      It’s never about democracy or central planning. It’s always about human greed.

    • nick kelly says:

      Ann- Stevenson Yang has been to China. She has lived there for 25 years and is fluent in Mandarin (altho hubby and kids laugh at her accent)
      She founded her firm which is devoted to getting the real numbers out of China- not an easy task. (RE: electricity; this was an early way of finding out real growth but then the CCP caught on and it was manipulated. The guy who spoke about over capacity indeed slipped. If he keeps this up… )

      To watch a masterful presentation, enter her name and look for her photo on You Tube. She is talking to a bunch of suits while dressed in a jogging outfit.
      In Feb. 2015 about 6 months before the China market crash she estimated growth at flat to negative. Entire industries were drowning in excess- aluminum, concrete, steel, etc. etc.
      An aluminum plant that tried to close was forced to stay open by the state owned bank so it wouldn’t have to report a loss- this is typical.
      I’m not sure but I think this was before the ‘switch to consumer’ became the new mantra. This party line looks to me like making a virtue out of a necessity. A claim of internal growth is useful in that it can’t easily be verified, unlike imports and exports, which are down double digits.
      It can easily be shown to be extremely unlikely however, because you can’t transition from an export driven economy to a consumer economy is a year.
      Anyone could have made a lot of money acting on her estimate.
      Since 2008 China has poured more concrete than the US did in the entire 20 century.
      There is a lot of talk on these sites about money being created out of thin air: all the money in China seems like it’s just been printed.
      There was a lot of coverage about the recent long Chinese holiday, giving a blessed relief for its stock brokers.
      Among the millions heading home, many headed there on motorcycles.
      This wasn’t Sturgis- it was freezing outside and the typical bike was a 125 cc Yumbo, a kid’s beginner here, but often with a passenger there, parcels etc.
      This ‘middle class’ which would have to power the shift even to a 50% consumer economy is long, long way from equaling even the Walmart shopper here.

      • NotSoSure says:

        The authors of ZeroHedge and many other doomer websites have been to the US. Heck in fact they live in the US and their accent is perfect i.e. no one is laughing at them.

        Well these doomers have been calling the end of the US economy for the past 7 to 8 years. At this point we are supposed to be in the midst of hyperinflation or is it hyperdeflation, etc, etc.

        The dream ends when enough people has seen through the consensual hallucination (as Wolf put it), and judging from the choice of Trump vs Hillary, perhaps “the end is nigh here”. We should probably repent.

        • Sarastro says:

          The fed’s own industrial output statistics have been running negative YoY for several months. that indicates a contracting economy. Hiring is up, but life/ death models probably exaggerate the current employment statistics.

        • d'Cynic says:

          In defense of ZeroHedge, maybe they just figure inflation the old fashion way. Where I live, fifteen years ago buying a house was affordable. Today it would be a wild dream induced by hallucinogenics. Unless you count a shelter as a luxury item.

          With regard to China. They copy everything including someone else’s economic model. In Japan, the ruling party was in power for forty years? In all those years and continuing, it was a premier currency manipulator. And South Korea achieved it’s industrialization while it was a military dictatorship. In the end, they can hardly be called a disaster.

        • d says:

          “In Japan, the ruling party was in power for forty years? In all those years and continuing, it was a premier currency manipulator. ”

          Along the way, around 1988, the rationale of the currency manipulation, shifted.

          Post 88 the rationale was to devalue the Yen. To STOP IT, becoming the international currency, a position still held by the US $.

          Which is why the US publicly said, and did, so little about it.

          Although for may, the Yen, is still THE CURRENCY, of Asia, and the Western Pacific rim..

          Much to chinas displeasure.

          china wants the international currency Status, and Japan dosent.

          china, never copies the important parts, that really matter.

    • Chicken says:

      So you propose China’s rise isn’t positive for the global economy, is that your point?

  11. Tom Belstler says:

    I suggest reading Stephen Roach’s columns on Chine. He has extensive experience in China as Morgan-Stanley’s Asian Chairman and the firm’s chief economist.–roach

    There are other sources of reliable information but one thing to keep in mind is that the Chinese economy does not run from quarter to quarter like the US economy. Are there big problems in China? Absolutely!!! But, name me one country that does not have big problems today although some manage to hide them better than others.

    Here is a link to a Chinese purchasing power index:

    Note the rapid growth in purchasing power, a remarkable achievement by any standard that one cares to apply.

    Here is a cost of living index that is quite up to date:

    Please take into account the base from which these 1.5B people have come from. I do my best to give credit where credit is due without applying ideological biases.

  12. Sarastro says:

    China has many obsolete facilities in their production supply chains. If there are surpluses, all that means is that old, inefficient (often highly polluting facilities should be retired) … and the workforce redeployed to other sectors.

    • Wolf Richter says:

      These facilities were funded with debt, and operating losses too were funded with debt. That debt is still out there. When the facilities stop producing, or produce at a loss, that debt becomes “non-performing” on the books of the banks, but there is practically no collateral value left.

      That’s one of the biggest, most desperate problems China has, and they’re struggling mightily to contain it (by “extend and pretend,” for example). By thus trying to contain it, they’re making the problem only worse because this is cumulative, and every day that it isn’t dealt with, it gets bigger.

      • Chris says:

        The official party line of near 7% annual growth and the flourishing of a consumption based economy is running into some very inconvenient facts. Exports are on life support and the notion of a consumer class in China that is large enough to sustain this type of growth is a myth. In fact, many industries in China are laying off thousands of workers as a result of the collapse of the export sector. Kinda hard to consume without a wage paying job. One has to wonder if China is contemplating simply writing off these bad loans.

        • TheDona says:

          China…US…EU….aren’t we all in the same boat here? More fake Gov.statistics-More yammering about a consumer driven economy. Meanwhile all countries have a shrinking base of employed consumers and wages are going down. Bye-bye hard working middle class….who are the consumers and tax payers! In tandem we have an accelerating amount of newly created Billionaires telling us how great or economy is. The class divide has reached an insane level.

          China iron handedly controls the media. The US media spins it and optimistically sells it through your favorite Bobble-head. How ever you slice it, it is all Gov. controlled lies.

      • Sarastro says:

        I fully understood the implications of closing obsolete facilities when I posted my comments.

        The problem is not insurmountable. One general solution would be for the PCB to create an Obsolete Facilities Liquidation Program to buy up all/ part of the remaining asset value for old obsolete facilities, and simply liquidate the facilities. The holdings themselves are virtually worthless, so the titles can be burned.

        Unorthodox? Sure. But consider the alternatives: the Chinese economy supporting stranded, inefficient, polluting assets of no value. Sooner or later they’ll hit official “non-performing” status while still supplying massive over-capacity. Better to do the deed in a systematic fashion than endure uncontrolled collapse or extended anguish.

        • d says:

          “the Chinese economy supporting stranded, inefficient, polluting assets of no value. Sooner or later they’ll hit official “non-performing” status while still supplying massive over-capacity. Better to do the deed in a systematic fashion than endure uncontrolled collapse or extended anguish.”

          These inefficient polluting assets, sustained by non performing loans are part of the State subsidised, employment and food prices program.

          restructuring involves unemployment ,which can lead to, Social Unrest.

          it will not take much “Social unrest ” to unseat the CCP.

          Which is why the CCP controlls all, to limit any social unrest, at all costs.That big Land Army with all those tanks, is there for a reason

          The CCP wants its cake, status of dominating the planet economically.

          Whilst eating it, nationally with total control, of everything.

          Currently china is still printing money to sustain inefficient state owned entity’s is new ways.

          Like state guaranteed bonds, to replace haircut-ed nonperforming loans, the bonds are acceptable to the PBOC as collateral for loans to Bank’s.

          Replace NPL, with NPB, that will not Mature for, 10, 30, 50, years.

          The NPL/B inverted pyramid is getting bigger, and pushed further out.

          So it will not fall in Chairman XI’S time on earth. Xi hopes.

          Yet the Idiots in the IMF still want CNY in the SDR.

          When china has enough CNY loaded into global banking system, it will devalue it. By 1 or 2 decimal places, overnight without warning, as usual.

  13. Agnes says:

    There was little collateral to start with as the debt was based on fiat(central bank) money and not limited by the savings of the sovereign consumer. I doubt China will do what Iceland did, but neither are Chinese as used to having everything they like either. We should not be surprised they are tightening their belts. And China has one ace in the hole…they urged their citizens to buy gold several years ago.

  14. Chicken says:

    So China has abandoned the policy of producing consumer good at a loss, is that what we’re saying? So where from here?

Comments are closed.