China: Digger Sales in the Ditch
Robert Cookson, “China: Digger Sales in the Ditch,” BeyondBrics Blog, Financial Times, 27 January 2012.
How worried should investors be about a slowdown in China? According to the latest GDP statistics, China’s economy expanded 8.9 per cent in the fourth quarter of last year, confounding those who had been predicting a “hard landing” for the country.
But other indicators, such as sales of earthmoving equipment, tell a different story.
“Finding data that accurately reflect real economic activity and are not easily manipulated for political reasons is a key challenge in assessing the Chinese economy,” say Gabe Collins and Andrew Erickson on their blog China SignPost. “We believe that earthmover sales are one such indicator.” …
Earthmover sales are a particularly useful indicator, argue Collins and Erickson, because China’s economy is largely driven by construction and fixed-asset investment, which is very heavy equipment-intensive.
And unlike other construction inputs such as copper and steel, earthmovers are not hoarded by speculators. After all, they are illiquid assets that depreciate in value as soon as they are acquired. Therefore earthmover sales are a superior gauge of real demand within the construction sector.
Which is why the following chart should alarm investors. It shows how sales of excavators, bulldozers, and wheel loaders have plunged in recent months. …
To read the original full-text report on which this post is based, see Gabe Collins and Andrew Erickson, “Digging In: Earthmover sales reflect risks to China’s economic growth,” China SignPost™ (洞察中国), No. 52 (17 January 2012).
