Chinese economy due for a hard landing? Not necessarily

The many analysts who are arguing that the current slowdown in the Chinese economy is more severe than Beijing wants to let on have a new exhibit A these days: the burgeoning nation’s suddenly stingy power consumption.

Image courtesy Christoph Filnkößl

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China’s electricity usage has tripled since 1998, and until this April it was growing at a healthy annual clip of more than 7%. Then the country’s demand for power tumbled off a cliff. The July numbers eked out a year-on-year increase of only 2.1%.

That is a harbinger of catastrophe, according to those who predict that a hard landing for China is surely on the way. “We’re talking about a Chinese economy that is flat-lining,” Gordon Chang, author of The Coming Collapse of China, recently told Bloomberg Television. Chang published The Coming Collapse of China in 2001.

Sinologists without books to sell tend to be less categorical, however. The current plateau in Chinese power consumption reflects cutbacks in a few energy-hungry industries, such as steel and cement. These industries gobble 60% of the country’s electricity to produce 20% of its GDP, Credit Suisse economist Dong Tao recently told Bloomberg Business Week. Less wattage consumption is actually a healthy indication of the Chinese economy shifting to services. Also, China’s manufacturers are upgrading their factories for greater efficiency, and this also has a cooling effect on energy usage.

Emerging Money’s view: A slew of multinational corporations, ranging from Apple Incorporated (AAPL, quote) to fast-food powerhouse Yum! Brands Incorporated (YUM, quote), continue to report double-digit sales growth in China. This is a sign that the economic miracle in the People’s Republic is not suddenly grinding to a halt. The Chinese economy is experiencing visible growing pains, but a belief in its “coming collapse” may just be wishful thinking on the part of China’s detractors.

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