Drop in China’s power consumption traced to industrial production plunge

There seems to be a hidden reason for a large reduction in China’s electricity use in January.

A significant drop of 7.5% in China’s electricity consumption in January from December reported by the China Securities Journal is officially being credited to the shutting down of factories during the Chinese Lunar New Year.

Analysts, however, point out this decline is so huge it cannot be explained by the factory shutdown excuse alone. In China, power consumption is traditionally an accurate gauge of economic activity and both are sometimes taken synonymously.

With this metric as a measure, Tokyo-based financial services firm Nomura Securities Co., Ltd described the drop as “alarming.”

It noted that there has not been a decrease in electricity production since 2002. Nomura concludes that “. . . this drop reflects a sharp slowdown in industrial production.”

If proven accurate, its conclusion means China will reel from challenging PMI readings in the months ahead.