China Cancels Coal Reports Amid Economic Doubts – Analysis

By Michael Lelyveld

China’s major power companies have stopped disclosing their daily coal consumption data after more than a decade of reports, shutting a widely-used window on the country’s actual economic growth.

On July 6, industry data provider China Coal Resource said that the daily “coal burn” reports had suddenly ended because three of the six biggest state-owned power producers were no longer reporting, according to Bloomberg News.

Two days later, the number of companies withholding data had expanded to five of the six, the South China Morning Post said.

The companies have not given a reason for the decision, which came less than two weeks before the National Bureau of Statistics (NBS) released official economic growth figures for the second quarter and the first half.

Analysts have used the daily data as a tool to track trends in China’s economic activity. The coal consumption information was first made available in 2009, the Morning Post said.

Before the shutdown, the data was channeled through Qinhuangdao Port Co., China’s largest coastal distribution point for coal, and the China Coal Transportation & Distribution Association (CCTD).

Neither group has shed light on the motives for suspending the reports.

Possible motives

One leading theory cited by the Morning Post is that the generating companies did not want to give information to coal suppliers that could strengthen their hand in price negotiations.

Coal prices have been rising with growing demand as the government pushes economic recovery with cuts in taxes, fees and electricity rates.

In June, China’s total power use climbed 6.1 percent from a year earlier, signaling a rebound in economic activity, the National Energy Administration (NEA) said. Despite the June increase, consumption in the first half still lagged the year-earlier pace with a decline of 1.3 percent.

At a meeting last week, the government’s top planning agency urged coal suppliers to increase their output ahead of the summer’s peak demand period for air conditioning, Reuters reported.

In keeping with past practice, the National Development and Reform Commission (NDRC) directed coal buyers to deal with the price spike by negotiating long-term contracts at lower rates. The agreements should cover at least 80 percent of supplies, up from 75 percent previously, the NDRC said.

In the first half of the year, raw coal production rose 0.6 percent from a year earlier to 1.81 billion metric tons despite a 6.3-percent drop in the first two months of the year. Steam coal prices edged up about 5.3 percent in June, the NBS said.

But the unexplained information blackout from the state-owned power companies suggested another possible reason for halting the daily data flow.

In the absence of more timely and reliable NBS reports, forecasting firms like Capital Economics had turned to the coal data and similar tracking tools to chart China’s economic growth during the pandemic lockdown.

In one posting in mid-March, Capital Economics estimated that first-quarter gross domestic product would shrink by 16 percent year-on-year, based on the daily coal readings and other surrogate indicators like subway ridership, traffic congestion and the intensity of lighting at industrial parks.

Nearly a month later, the NBS reported that first-quarter GDP had dropped 6.8 percent, contracting for the first time in four decades.

The official figure was marginally worse than the negative 6-percent forecast from a Bloomberg survey of economists, but markedly better than the estimate based on surrogate indicators like daily coal use.

The depth of the first-quarter economic decline may come up for scrutiny again, now that the NBS has reported a significant economic turnaround in the second quarter with GDP growth of 3.2 percent year-on-year.

The official result outperformed a median forecast of 2.6 percent growth in an economists’ survey by The Wall Street Journal and a 2.5-percent forecast in a Reuters poll.

Despite strong industrial output growth of 4.4 percent in the quarterly period, retail sales fell 3.9 percent in a sign of continued weak demand. Even taking the official second-quarter figures into account, GDP dropped 1.6 percent in the first half.

The timing of the daily coal data shutdown may suggest concern over indicators that could challenge the turnaround story.

Maintaining positivity

Mikkal Herberg, energy security research director at the Seattle-based National Bureau of Asian Research, said that either explanation could account for the omission.

“It seems clear Beijing is worried about making sure that a return to growth is believed by the broader public and business community. It’s not hard to believe the leadership will do whatever is needed to maintain the narrative, including undermining data availability,” Herberg said.

“But there often are things that industry does that are really related to costs, competition and production,” he added.

Derek Scissors, resident scholar at the American Enterprise Institute in Washington, offered two possible explanations, depending on whether the undisclosed data shows more or less coal consumption.

“They may not want to report spikes in coal use because it’s an ecological embarrassment,” Scissors said, noting that China suspended coal production data in 2010 when its share exceeded half the global total.

But if the missing data shows less coal use, it could contradict the government’s recovery claims.

“Merely mediocre coal consumption data would help undermine that story,” Scissors said. The alternatives suggest a no-win situation for the government in continuing to release the information.

The ambiguity is compounded by doubts about the official growth claims.

In an online posting, Scissors cited several contradictions that undercut the NBS return-to-growth story.

On June 15, the NBS reported the results of a May 27 survey finding that 67.4 percent of enterprises were “back to 80 percent of their normal production levels, up 6.6 percentage points from late April.”

While the claim was meant to show progress, it implied that production was down by 20 percent at nearly one-third of enterprises.

That conclusion would make growth unlikely unless the recovering companies were overproducing by at least 20 percent to make up for the no-shows, which would be even less likely, Scissors said.

Services also appear to have done little to support expansion.

On July 7, the Ministry of Commerce reported that the work resumption rate in the household services industry had reached “over 90 percent” as of the end of June. In other words, nearly 10 percent of the activity had not restarted, putting a damper on growth.

“It’s very difficult arithmetically to generate on-year growth when a chunk of firms have gone to zero activity,” Scissors said.

First-half declines in the two largest components of GDP also exceeded the 1.6-percent drop in total GDP by a wide margin, casting doubt on NBS calculations. Fixed-asset investment (FAI) was down 3.1 percent while retail sales fell 11.4 percent.

“China rushes to publish data that never hold together,” Scissors said.

While the government can be expected to put the best face on the economy in ordinary times, the pandemic crisis may be calling for extraordinary story-telling to create illusions of growth.

In previous slack periods, official GDP targets have given guidance to the NBS and provincial officials in their reporting of acceptable economic data.

But the omission of annual growth targets from Premier Li Keqiang’s work report to the National People’s Congress in May has left officials on uncertain ground.

That uncertainty may be behind the power companies’ decision to restrict potentially conflicting data. If that is the case, there may be further steps to shut down other surrogate indicators, clouding economic transparency.