China economy watchers have in recent weeks been puzzled by two seemingly irreconcilable pieces of statistics. Sales of motor vehicles are soaring: some 7.2 million passenger cars were sold during the nine months from January to September 2009, up 42% over the same period in 2008.
Monthly sales figures are even more spectacular: year-on-year sales growth in September was an astonishing 83%.
Yet, sales of petroleum and petroleum products — which should have risen in tandem with the car sales — have been far more subdued, and by some estimates flat.
Unable to account for this seeming inconsistency, some economists have remained sceptical about the authenticity of official Chinese statistics.
“Chinese data, as always, need to be interpreted with some caution,” said Moody’s Economy.com economist Matt Robinson. “The stark divergence between vehicle sales growth and fuel sales growth suggests that a large number of cars are being sold but not driven — or at the very least, driven to a much lesser extent.”
Citing anecdotal evidence, Robinson reported that retail inventories were building up in China. “There have been reports of large fleets of new cars remaining idle in warehouses and holding yards, or in government vehicle car parks, as opposed to being sold to end users and driven.”
The theory went that in order to shore up the economy, the government had directed stated-owned enterprises and local government officials to buy up cars, in some cases using funds from the 4 trillion yuan stimulus package.
However, other economists reason that there might be other, “more reasonable” explanations for this statistical divergence. Standard Chartered economist Stephen Green is one of them. Green argues, firstly, that the headline car sales data overstates the growth in the total number of cars in China.
“We need to assume some retirement of old cars.” And when considering demand for fuel, it’s the growth in the total stock of cars, not just sales growth that matters. The passenger car stock will grow by some 24% y-o-y in 2009, which in percentage terms “is not as big as some of the headlines suggest.”
However, it’s rather more difficult to work out details of sales of China’s gasoline, which fuels all passenger cars and minibuses in China, given the absence of consolidated data.
Even the most authoritative industry newsletter, ‘China Oil, Gas and Petrochemicals’ has problems, notes Green.
Likewise, numbers from the refiners themselves on sales of gasoline at the pump are “problematic”. But from what can be pieced together, the mystery remains unsolved: fuel sales growth does lag headline car sales growth.
Green then offers several explanations to account for this. He surmises that Chinese people are buying smaller, more fuel-efficient cars —- and retiring bigger, less fuel-efficient cars. He said cars with engines of under 1.6 litres have enjoyed the fastest sales growth of all categories in 2009, helped by tax breaks for small cars.
They’re probably also travelling less —- and driving their car less —- because of slower income growth, particularly since gasoline is 20% more expensive than two years ago.
Additionally, the slowdown in freight traffic and in industrial activity since last year probably affected demand for fuel, he reasons.
One additional factor, says Green, is that taxi fleets and other vehicles in cities and towns across China are converting to liquefied natural gas (LNG).Green concedes that it is “hard to come up with data to support all these points,” but points out the “complete absence of evidence” behind the assertion that all the cars are being bought up by government departments and state-owned companies.
“We are not averse to calling official data into question… but just being sceptical is not enough. Such claims have to be backed up by some evidence.” In this instance, he said, the hypothesis that the government and state-owned companies are buying all the cars does not amount to evidence, he adds.
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