Model Portfolio timbo56:SSOF1

Mark Twain said, “There are three types of lies: lies, damned lies and statistics.” Chinese statistics might now be added as a particularly difficult group to decipher. The names of the statistics tend to be stated in contorted English, such as “Growth Rate of Value-Added of Industry.” I’m pretty sure that I know what is meant by that, but I would have said, “Growth Rate of Value-Added by Industry.” There is also: “Floor Spaces Sold and Sales Price Growth of Commercial Buildings,” but based on the column headings, I would have named this one, “Commercial Floor Space Sold, Given in Square Meters and Yuan Spent.” The average sales price could be calculated by dividing the Yuan Spent by the Square Meters Sold, so I guess it all works out.

In any event, depending on what statistic one looks at, it appears that China is quickly reacting to its downturn in export demand, by focusing on growth in domestic demand. In Shanghai, value added by industry was down 4.9% in April from a year earlier, but in Hunan province, in the interior, it is up by 18%. In April, investment completed in housing was down 32.9% in Fujian and in 12.7% in Guangdong. In Jilin (a province in Manchuria), however, the same figure was up 87.1%, and in Hunan it was up by 16%. So it appears that although the economies of some coastal provinces have been hit hard by the sudden decline in exports, growth has shifted to interior provinces, perhaps to satisfy growing internal demand and perhaps to some degree due to government intervention aimed at helping these traditionally poorer regions.

Viewing the “Output and Growth of Major Industrial Products” yields a similar impression. It used to be that there would be large increases pretty much across the board, but in the statistics for April, the production of small-sized tractors (lawn tractors), which must be primarily an export product, fell 10%, whereas the production of Medium sized tractors grew by 43%, perhaps because of the economic stimulus agricultural effort. Growth in production of products is now very much a checkerboard, apparently related to export intensity.

The real eye popper, however, is automobiles, up 17% to 1,181,200. That is an awful lot of trucks and cars to produce in a month, and if we multiply by only 11, to be conservative because April tends to be a fairly high production month, we get an annual production rate of about 13 million. China does export some cars, but most of these are for the domestic market, meaning that we can expect petroleum consumption to grow rapidly in China this year. This is born out by the figures for the production of gasoline, up 19.6%, to 1.4 million barrels per day. Diesel fuel, perhaps more closely related to overall economic activity is up a mere 0.7%.

Noting that so far, only slightly more than 5% of the stimulus funds have been spent, China appears to be doing reasonably well and should contribute to growth in demand for petroleum. My thought is that with Chinese consumption growing so rapidly, when the United States starts to rising employment, we will have rapidly increasing petroleum prices.