Circumstantial evidence of Chinese bubble from the IEA

Starting several years ago I have been pointing out the overheating of the Chinese economy here on the blog.  One of the difficult things about evaluating anything out of China is the poor quality of their official economic statistics.  So while the Chinese government reports that gross domestic product (GDP) in China has grown 10.3% – you have to take the data with a grain of salt.

The reason is that the Chinese have established a modern culture based on graft and influence because of rampant cronyism.  Those cronies are all in the business of saying “yes” when the Chinese government says to its people, “Can I get a yes?”  So when GDP goals are established by the communist government you had better meet the goal; even if that means lying with your statistics.

The latest governmental project coming down the communist government’s pipe is the curbing of substantial inflationary pressures building up in the Chinese economy.  But just because the government says to do something doesn’t mean that compliance follows very quickly.  In fact, I recently wrote about the gigantic number of “off balance sheet” loans being handed out by Chinese banks.

Alternate sources of data about the Chinese economy are therefore very, very welcome.  Thursday the International Energy Agency reported that it feels that the Chinese economy grew much faster than the officially reported 10.3%.

Data from the IEA are highly reliable because the Agency is charged with estimating global oil demand.  Because the Chinese economy is now the second largest on the planet, it is critical to have an accurate estimate of the demand for that very limited and most precious of resources: oil.  If the IEA and other energy officials mis-estimate Chinese oil demand then it would negatively effect the entire global economy.

So the IEA looks at additional Chinese economic data.  For example, they examine data such as industrial production and that figure was up over 15% last year in China.

The IEA publishes its own estimate for Chinese energy needs each year.  Last year, when Chinese GDP grew by 10.3% the IEA estimated demand for oil in China would grow at 12.2%.  Because China’s economy is so manufacturing driven it is also very energy intensive.  So the 12.2% estimated increase in oil demand is probably a more accurate gauge of the true magnitude of Chinese economic growth.

So what is the IEA estimating for 2011 Chinese oil demand?  It is estimating a much slower growth of 6%.  In other words the IEA is estimating a bursting of the Chinese economic bubble, for them to be predicting energy demand to be halved from last year.

Jason