CHINESE DATA : TAKE IT WITH PINCH OF SALT
A few weeks back and in my last column as well, I had raised this issue of the indigestible Chinese Data.
Understanding this phenomenon is necessary as China has been the lynchpin of the global recovery. A buoyant economic data emanating out of China has the power to move the global markets. But tomorrow if the veracity of this data is questioned then the gains that have been triggered by this data could vanish.
The Chinese GDP has grown about 7% in the first half of 2009. But their electricity consumption has gone down by 1.7% !!!. How do you explain this?
Official response to this criticism has been that China manufactured products for domestic consumption, which did not require high power for manufacturing.
Another case in point is that if you sum up the GDP of the 31 Chinese provinces, the end result is 10% more than the China’s total GDP (Rmb 13,986 bn) . The reason could be that the central authorities that collate the data believe that the overzealous provincial mandarins may have window-dressed the data and accordingly they may have applied a 10% haircut after collation. This belief comes from the fact that provincial officials have enormous incentives to improve their career prospects by exaggerating local economic growth.
Globally agencies revise their initial findings over period of time. The revised data could be lower or higher than the first reported data. It is pertinent to note that In China, no growth figure has ever been revised down.
Even the state controlled media editorials have raised questions over the accuracy of data. An online poll in China showed that 88% of the respondents doubted the accuracy of the official data. In another survey, more than 91 per cent of the respondents admitted that they would take government data with a pinch of salt. The same proportion was 79 per cent in 2007
So you can be damn sure about one data, that Chinese are consuming higher salt than they did years ago.
While I treat Chinese data with the disdain it deserves, I would like to selectively believe that the tightening of the lending in July ( Bank lending reduced 75% as compared to June) will have a salutary effect on the commodities. As China applies the brakes, those riding the dragon may have to go into a brace mode.
Drought gets accentuated
Its not official yet but the Agriculture minister did finally see the writing on the wall and accepted that we have a drought in the country.
I don’t need to dish put more data than this that the precipitation is short by 29% now , as compared to 25% last week and the number of deficient met divisions has swelled form 25 to 31 out of a total of 36. What will further add to the worry on this count is that Monsoons will beat an early retreat by mid-September and will not extend their stay till early October , as has been the usual case.
What this translates into is that while trekkers and devotees who trudge up to Hemkund Sahib in the last jattha on 5th October will not have to negotiate snow, it also means that reservoirs across the country will not get their late share of showers. Drinking water scarcity and power shortages in the summer of 2010 is very much with in the realm of possibility. The top soil will not carry the requisite moisture and adversely impact the Rabi crop in November – March period. As more water gets pumped out of the ground, some wells may soon run dry on account of lower charging of ground water this monsoon season.
Then there is scientific paper based on imagery of NASA satellites that says
groundwater levels in Punjab, Rajasthan, Haryana and Delhi are falling dramatically, by one foot a year, a trend that could lead to “extensive socio-economic stresses” for the region’s 114 million residents. This certainly adds to the gloom.
New Tax code
Many brokerages have sung hosannas about the new tax code. I think, it is rationalization of the tax structure and nothing more. Reduction of corporate tax rate to 25% is nothing to write home about. As it is corporate India pays less than 23% on an average. While some companies will gain and some will lose, at the net level there is nothing to sing and dance about.
The government may rue its decision of scrapping the STT as the collections form the long term capital gains tax are not going to fall sort of the STT which otherwise would have been collected. From a capital market perspective it’s a retrograde step.
The brokerages, however, can celebrate as they will get their investors to sell long term holdings during the current STT regime and make them buy the same stock the next day. This will obviate the need to pay any tax now. And for future their high buying price will reduce the tax incidence in the long term capital gains tax regime.
Technically speaking unless the Nifty closes below the 4360 mark, the markets cant be called be called bearish, but the moment you step back and take a look at the larger picture, you cant miss the bearish expanding triangle formation.
About the new ‘mark to market’ rule being prepared by the US FASB, we will talk in another forthcoming column.
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