Help
Quote
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://blogs.ft.com/.../#ixzz1kuCcvxLB
How worried should investors be about a slowdown in China? According to the latest GDP statistics, China’s economy expanded 8.9 per cent in the fourth quarter of last year, confounding those who had been predicting a “hard landing” for the country.
But other indicators, such as sales of earthmoving equipment, tell a different story.
“Finding data that accurately reflect real economic activity and are not easily manipulated for political reasons is a key challenge in assessing the Chinese economy,” say Gabe Collins and Andrew Erickson on their blog China SignPost. “We believe that earthmover sales are one such indicator.”
Indeed, as Wikileaks revealed last year, even Li Keqiang, the man expected to succeed Wen Jiabao as Premier of the Communist party, has admitted in private that GDP figures are “man-made” and unreliable.
Li told a US diplomat that he preferred to use statistics such as electricity consumption, volume of rail cargo and bank loan growth, which are less likely to be fudged.
Earthmover sales are a particularly useful indicator, argue Collins and Erickson, because China’s economy is largely driven by construction and fixed-asset investment, which is very heavy equipment-intensive.
Which is why the following chart should alarm investors. It shows how sales of excavators, bulldozers, and wheel loaders have plunged in recent months.
Collins and Erickson reckon the data is a powerful warning sign.
This time round, however, the government has less room for manoeuvre. And unlike three years ago, Beijing is determined to see property prices fall. That bodes badly for earthmover sales as well as the wider economy.
How worried should investors be about a slowdown in China? According to the latest GDP statistics, China’s economy expanded 8.9 per cent in the fourth quarter of last year, confounding those who had been predicting a “hard landing” for the country.
But other indicators, such as sales of earthmoving equipment, tell a different story.
“Finding data that accurately reflect real economic activity and are not easily manipulated for political reasons is a key challenge in assessing the Chinese economy,” say Gabe Collins and Andrew Erickson on their blog China SignPost. “We believe that earthmover sales are one such indicator.”
Indeed, as Wikileaks revealed last year, even Li Keqiang, the man expected to succeed Wen Jiabao as Premier of the Communist party, has admitted in private that GDP figures are “man-made” and unreliable.
Li told a US diplomat that he preferred to use statistics such as electricity consumption, volume of rail cargo and bank loan growth, which are less likely to be fudged.
Earthmover sales are a particularly useful indicator, argue Collins and Erickson, because China’s economy is largely driven by construction and fixed-asset investment, which is very heavy equipment-intensive.
“Excavators offer the purest reflection of equipment demand in China’s domestic market, for two major reasons. First, over the past two years, on average, only 2.4% of excavators sold by Chinese manufacturers went into the export market. Second, excavators are extremely versatile for construction work, as they can be fitted with equipment that allows them to dig, drill, jackhammer, and perform other functions. As such, they can be used to prepare foundations, to dig paths for water and gas pipes, power cables, and other utilities, and myriad other tasks critical to building and infrastructure construction.”
And unlike other construction inputs such as copper and steel, earthmovers are not hoarded by speculators. After all, they are illiquid assets that depreciate in value as soon as they are acquired. Therefore earthmover sales are a superior gauge of real demand within the construction sector.Which is why the following chart should alarm investors. It shows how sales of excavators, bulldozers, and wheel loaders have plunged in recent months.
Collins and Erickson reckon the data is a powerful warning sign.
“Slowing earthmover sales are most valuable for what they tell us about the state of construction and infrastructure building activity in China at present; and to some extent, about how heavy equipment operators view their future prospects in these areas. In particular, weakness in excavator sales, which are tightly leveraged to the domestic market and integral for construction work due to their versatility, suggests that a real estate price decline in 2012 poses substantial risks to GDP growth.”
When the global financial crisis struck in 2008, Chinese earthmover sales tumbled. But they soon rebounded after the Chinese government unleashed a massive stimulus package, much of which went into construction and caused property prices to surge.This time round, however, the government has less room for manoeuvre. And unlike three years ago, Beijing is determined to see property prices fall. That bodes badly for earthmover sales as well as the wider economy.
