How China rigs its growth numbers... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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How China rigs its growth numbers... 

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In this issue:
» Land bill goes off the agenda
» India's planned capex to reduce by one-fourth
» Direct employment numbers fall substantially
» High food prices are a serious problem, says Sharad Pawar
» ...and more!!


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00:00
 
Not many days ago, renowned economist, Marc Faber and market analyst, Andy Xie had suggested that China's GDP growth rates may not be what they seem to be. According to them, the dragon nation is pumping in excess liquidity into 'unproductive' areas of the economy rather than diverting them to producing goods and services. In fact, Marc Faber also made a statement that the Chinese economy is growing at 2% and not at 7.8% as what its government claims.

What gives their connotations more strength is a shocking statement made by a Chinese Communist Party official recently. "Some of our GDP data sure looks rosy. But they do not amount to growth of social wealth; in fact, social resources are being wasted to show GDP growth." were some of his words. Giving an example of what the Chinese government does, he suggested that provincial party officials build a bridge, then dismantle it and then rebuild it, each time contributing to GDP. What makes his claims more believable is the fact that he is one of the few provincial party leaders who is also a member of the decision-making central Politburo. If the overstatement of economic numbers does turn out to be true, it will have huge implications! Imagine what will happen to the stock market rally that has been built around it!

An interesting fallout of all this could be that India may start looking even more attractive as a long-term investment destination!

01:02  Chart of the day
Today's chart of the day is a validation of the slowdown in tech spending that managements of Indian IT companies have been warning about since the past few quarters. The chart shows the unemployment levels in Silicon Valley (San Jose, US) where most of the world's biggest tech firms reside. The unemployment rate there is now at 11.8%, even higher than the peak of 9.1% it touched after the dotcom bust of 2000. The situation in India's Silicon Valley - Bangalore - though doesn't seem to be same given that while tech companies have announced some layoffs, these have just been marginal.

Source: Bureau of Labor Stats, US

01:27
 
The landmark land acquisition bill, which has not been amended since 1894 and the one that seeks to fast track land acquisition for important projects, had to be withdrawn from the Lok Sabha yesterday. The reason? It has met with stiff opposition from the biggest partner of the UPA alliance, the Trinamool Congress and its matriarch, Mamata Banerjee. And any member of the UPA who believed that he did not expect this to happen, would indeed by lying. Ms. Banerjee's objections were very vividly on display during her confrontation with the Tatas and the West Bengal government over the Singur land acquisition process.

Ms. Banerjee wants quite a few clauses to be introduced in the bill but the most important one revolves around the Govt's role in the acquisition process. While the bill in its present avatar requires private parties to acquire 70% of the land and Government the remaining 30%, Ms. Banerjee's party has demanded that the Government's role be restricted to acquiring a mere 10%. But with even Congress not willing to give an inch, looks like both the parties will have to meet mid way. For the citizens of the country though, it means having to wait for the winter session of the parliament and hope that it does see the light of the day atleast then.

01:53
 
During times of slowdowns, companies' capital expenditures are likely to come down. More often than not, this is on account of lower consumer demand and tight liquidity conditions. During the slowdowns in 1998 and 2003, private sector investments in India were believed to have contracted. However, things do not seem to be so bad this time around. As per a report published by rating agency Crisil, the boom phase in the last few years has led companies to build up a decent cash position. In addition, banks are also more willing to lend to the fast growing sectors.

As per the report, India Inc will see a 25% decline in its planned capital expenditures over the next three years. From the announced capex figures of Rs 13 trillion, companies will now invest about Rs 10 trillion. However, in still represents a 7% growth on a compounded basis. Investment in sectors such as textiles, cement, metal, autos and oil refining are likely to remain weak. But the silver lining is that the much need investments in areas such as power, where the supply and demand gap is widening, are expected to rise 30% to 40% over the next three years. In addition, investment in areas such as gas transmission and distribution is also set to double.

02:42
 
While talks of green shoots sprouting in the economy have propelled stockmarkets upwards, it appears that the Indian people do not seem to be benefitting from it. This is because the recovery largely seems to be happening without any improvement in the unemployment scenario. Infact, as per a leading daily, a Labour Bureau Survey has shown that direct employment in the organized sector has gone down by a substantial 170,000. What's more, the EPF figures are also daunting as between April and June 2009, withdrawal requests have touched 3.2 m. This paints a pretty grim picture indeed!

Not surprisingly, the textile sector is the worst hit as a slew of poor export numbers have taken their toll. This raises the question of the sustainability of the recovery. For if there are no or reduced incomes in the hands of the people, where will the demand and consumption come from to fuel the growth of the economy?

No relief from unemployment
Industry Direct employment Contract Workers
Textiles -1.52 -0.02
IT/BPO -0.38 0.04
Metals -0.26 0.25
Gems & Jewellery -0.21 0.01
Transport -0.02 0.01
Leather 0.04 0.02
Automobiles 0.06 0.17
Handloom/Powerloom 0.57 -0.08
Overall -1.71 0.4
1 lakh = 0.1 m
Source: The Indian Express

03:25
 
Financial bubbles leave behind interesting footprints. Take the case of CNBC. Recently, reports have surfaced how the ratings for the channel in the US are down steeply. Media commentators have remarked that the fate of business channels is far more subject to external events than other categories. Market swings and extraordinary events have a much greater impact on their popularity than the programming or staffing talent. Key to CNBC's popularity are bull markets like the tech or liquidity bubble and startling events like bank failures. Contrast that with a general entertainment channel - their programming choices decide their popularity.

We believe, the analogy holds quite well in India. Business and news channels in India are also subject to swings in the BSE Sensex and extraordinary geo-political events. It is another matter that due to the high degree of competition between Indian general entertainment channels , they are not much better off.

04:07
 
In our recent editions, we had highlighted the threat from a poor monsoon. High food prices due to poor agricultural production are now a serious problem. In fact, the union agriculture and food minister, Sharad Pawar has admitted that the situation is serious. As per leading daily, he says, "The two main areas of concern are pulses and sugar. While domestic production of pulses has been low, availability is also down in global markets, leading to a supply-demand mismatch. Similarly, sugarcane farmers shifting to other crops in major producing States like Uttar Pradesh and Maharashtra has resulted in lesser production of sugar. All this has led to a continuous rise in the prices of these products." At a time when most investors are looking towards global cues, we believe, this has the potential to halt the stock market bull in its tracks.

04:42
 
In the meanwhile, the Indian markets were trading in the negative territory at the time of writing with the BSE-Sensex trading lower by about 320 points. As for global markets, Asia closed on a mixed note while Europe opened on a weak note.

04:52  Today's investing mantra
"I think that one should recognize reality even when one doesn't like it -- indeed, especially when one doesn't like it." - Charlie Munger
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11 Responses to "How China rigs its growth numbers..."

Sendhil

Aug 8, 2009

High food prices are a serious problem, say Sharad Pawar

Atleast the Minister was wake up not by the cries of the people, but thanks for the Maharashtra Assembly Election
for giving a wake up call for him. The sentence is incomplete, it should be "High food prices are a serious problem for Maharashtra assembly election"

We pray Ganesha to take NCP and Congress for dip in Arabian sea after his birthday celebrations.

Like 

sagecapital

Aug 8, 2009

Even Jim Rogers has questioned India's GDP numbers.
http://sagecapital.wordpress.com/

Like 

deep

Aug 8, 2009

Dear sir,
5 mintes wrap is realy an interesting article to read it gives a lot of updates. As per as china's growth is concern I feel what about the growth which china is reporting since last couple of years?And its a real time to all the rating agencies that to analyse the facts and figures of the same.

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NIMISH CHITALIA

Aug 8, 2009

Dear Sir,

First of all the news section of equity master is indeed very interesting. I do not miss a single day reading this section. I am a regular reader of Chinese economy since last many years. Well, there is a talk of town that Chinese GDP is camouflage and do not reveal the correct picture. If this is the case then we can not trust its GDP in the past as well. Mr. Faber who is well known economist if saying Chinese GDP is growing at 2% then I am sure he might have computed numbers on the paper. I do not have an access to Chinese GDP but couple of logical arguments I wish to share with readers are furnished as below.
1) We all agree to the view point that China is the largest importer of all raw materials starting from oil to food grain and fruits.
2) It has massive FOREX reserves around size of its GDP.
3) It is feeding internally and USA \ EU economy also
4) We agree that China is supporting the World Economy and second largest Oil consumer globally.
5) China is an attractive FII \ FDI destination.

All these activities conform that China is growing big into size. If we argue that China rigs the GDP numbers, I think there is limitation to it. The numbers many be up and down by 1% to 1.5%. I am unable to digest that GDP is 2% as mentioned by Mr. Faber. What ever it may be the World is still depends on China and it is the driving force of World economy.
The statement made by the Editor on 'Wrong GDP and Pumping excessive liquidity' is different issue and requires long debate.

Thanks

Like 

GOPAL KOKAL

Aug 7, 2009

you have not talked about employment in banking & financial sector, will you pl check and then put you analysis
thanks

Like 

Amina

Aug 7, 2009

In your 04.07 issue you state that ....."has resulted in lesser production of sugar". Do you mean less or inferior production of sugar? "Lesser" means inferior wheras less generally indicates a reduction in quantity.

Like 

Markand Desai

Aug 7, 2009

Is it possible to have "REAL CORRECT" INFORMATION ON INFALTIONDATA AND GROWTH PROJECTION DATA,whith referance to fiscal deficit and Wpi?
It appears that data published ,even Monsson data,are for stock market menipulation rather then any meaning ful corrective action.
Surprisingly ALL MEDIA AND ANALYSTS ar singing in same tune and tone.

Like 

Shankar R

Aug 7, 2009

On CNBC ratings, the biggest problem with the channel and the organization is their aloofness and lack of willingness to make specific recommendations and stick with it. The entire investor and business community expects business news channels to ultimately hold a view of their own and stick strongly to it, however, CNBC's attitude is not to take any responsibility or commit to any views or advice to investors. That is the primary reason why people see them as transmitting dozens of different, confusing and contradicting views from multiple analysts, but leaving it to the viewer to draw their own conclusions - they have no ownership or stake in the ground on the economy and what investors should do. Because of this, CNBC fails in its responsibility to warn the investors of crises and stock market crashes like the recent one and lose their credibility. Recently in the US, Jim Cramer, a popular CNBC program presenter got ripped apart in another TV show where the host blamed him for being irresponsible and the reason why so many Americans lost their 401K savings due to the crisis - the media and people like him failed to see the crisis coming or even warn the people on what to do even in the middle of it.

Like 

nr pillai

Aug 7, 2009

u did not tell anything about what happened to today
what may happen tomorrow to indian stocks tomorrow

Like 

Joseph John

Aug 7, 2009

Sir,

The 5 minute wrapup is interesting, it gives lot of insight, which is educative and I donot miss reading it daily. Suggestion: could you send us an update for investors (may be subscribers) whenever there are volatility in the market, that would give us some prespective to make decisions.

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