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Tuesday, August 12, 2003

Power Consumption in China

While we in Europe continue to sweat and sweat under the sustained pressure of the summer 'canicule', the Chinese appetite for fuel consumption continues to grow and grow. Logically there is a problem somewhere. The French nuclear industry seems to have been built under the impression that the important temperature calculations were those pertaining to the interior of the reactor. It never seems to have been contemplated that the melt-down could be precipitated externally. Result: the nuclear industry is now functioning at reduced capacity, with the reactors being hosed-down externally, and the water being fed-back into the rivers at temperatures of around 30 degrees centigrade. Assuming that it's a good first guess that some of this climatic change is related to CO2 emmisions, what exactly is the plan?

China's orders for new power equipment so far this year have outstripped its purchases for the whole of 2002 by 50 per cent, as a restructured local industry attempts to keep pace with surging demand for electricity from industry and households. The purchases of power equipment in the seven months to July will add 30 gigawatts of new capacity to the national grid, equal to nearly 10 per cent of existing capacity, according to a survey of orders conducted for foreign energy executives.

The rapid growth is helping multinational infrastructure companies such as Siemens and General Electric compensate for weak demand in Europe and the US. GE Power Systems was aiming for $1bn of orders in China this year, but has already signed a $900m deal for 13 new gas turbines providing around 5 gigawatts. This year's orders compare to total purchases of 20GW worth of equipment last year, itself much higher than the two previous years, after a government moratorium on capital spending in the industry. At this rate, China could this year order new capacity almost equivalent to the UK's entire peak electricity demand of 55 GW. "The bottom line is they need to generate more power, so they are ordering equipment," said Joseph Jacobelli, an analyst with Merrill Lynch in Hong Kong. The survey for the foreign executives covers purchases only for thermal plants, which are mainly coal-fired, and does not include new capacity for hydro-electric or nuclear power.

The greatest growth in demand has come from increased industrial production, barely interrupted during the Sars crisis, and investments in power-hungry aluminium smelters. The rapid expansion coincides with an extended heatwave in parts of China, especially around Shanghai, which has forced the government to ration power to some factories and even close them on some days. Tan Yin, a researcher at Guangfa Securities in Guangzhou, says local Chinese manufacturers will get orders totaling around Rmb30bn-Rmb40bn in 2003. But their problems in keeping pace with orders may leave opportunities for foreign companies to sell into the Chinese equipment market, executives said on Monday.
Source: Financial Times

China's recovery from Sars boosts oil demand

China's faster-than-expected recovery from the impact of the Sars outbreak has boosted this year's forecast for global oil demand, the International Energy Agency reported on Monday. The West's energy watchdog revised global oil demand growth in 2003 by 100,000 b/d to 1.11m b/d, for a total of 78.41m b/d this year. It also said global demand in 2004 is now expected to be higher at 79.48m b/d after revisions to its historical data raised the baseline of non-OECD demand upwards. The global supply of oil surged by 916,000 b/d in July to 78.64m b/d, helped by higher volumes from the North Sea and gains in Iraqi production levels. The bulk of the increase was from non-Opec production, which rose by 688,000 b/d. Crude oil prices rallied at the end of July, after spending much of the month near post-Iraqi war highs of close to $32 on WTI and at the top of the Opec's target $22-28 price range, the IEA said in its monthly oil market report.
Source: Financial Times

German Government Banking on a Strong Recovery

The latest news from the German Finance Ministry only serves to underline the limited room for manouevre which the German government has right now. The hope seems to be that the combined effect of a short - but not especially sharp - shock to consumption in the form of a tax cut, plus the ongoing 'structural reforms' will be enough to shake the German economy out of its lethargy. This, in any event, I doubt. So the question is, if the 'play' doesn't work, what next?

The German government's refinancing plan will cost taxpayers an additional euro 10.6bn ($12bn, £7.5bn) a year from 2005, according to a government proposal. The refinancing proposal, to be presented to the cabinet on Wednesday, includes tax cuts and reductions in subsidies, and aims to increase government revenues by euro 5.5bn next year. Hans Eichel, the German finance minister, plans from 2004 to cut subsidies to home-builders and commuters in addition to cutting subsidies for farmers.

The accompanying budget law entails bringing forward tax cuts from 2005 to 2004, which will see a one-off euro15.6bn tax relief for the taxpayer. At the same time, however, the government is pressing ahead with the long-term cuts in state subsidies from next year to finance the tax reform. This will see the government's revenues improve substantially from 2005, as the shortfall in tax revenues will already have been absorbed. The budget law still has to be passed by the Bundesrat, the upper house of parliament, where the refinancing plan may face opposition from the Christian Democrats.

If the tax reforms are brought forward but the refinancing package is blocked, parliament would have to approve an even higher debt burden; the government's decision to bring tax cuts forward to next year will cause a shortfall in revenues, adding further strains to stretched finances. According to Mr Eichel's proposal, seen by FT Deutschland, the federal government's budget consolidation efforts would increase state revenues by euro 10.6bn in 2005, by euro 11.2bn in 2006 and by euro 12.9bn in 2007. By bringing the tax reform forward by a year the government hopes to give the ailing economy a nudge. The government's ambitious reform drive and accelerated tax cuts have helped improve depressed sentiment in the eurozone's largest economy. The tax-cut plans have put pressure on the EU's stability and growth pact. Berlin admits it could break the pact for the third year in 2004, calling into question whether the deficit ceiling of 3 per cent of GDP still holds.

Back on the Blog: Lightly

After a week 'off the tools' chance has found me here in Provence, in the birthplace of Rene Char , arguably the best French poet of the second half of the twentieth century. Also as chance would have it there is some rather preoccupying news on the economic front from Sigapore. Eddie will not be happy. Blogging will be light as I am still trying to master the french - vivre la difference - AZERTY keyboard).

Singapore, one of the world's most trade-dependent economies, on Monday reported its worst quarterly contraction on record due to twin blows from the outbreak of severe acute respiratory syndrome and global economic weakness. The city state's gross domestic product shrunk by 11.4 per cent in the second quarter from the first and 4.2 per cent from a year ago. "Singapore has suffered a series of extraordinary events - Sars, regional terrorism, the slump in the global technology industry and a weak US economy," said Paul Schymyck, an economist for consultancy IDEAglobal in Singapore. On Saturday the administration cut its official forecast for full-year GDP growth to between zero and 1 per cent, from 0.5 per cent to 2.5 per cent.

It estimated that growth in the second half would be between 1.3 per cent and 3.3 per cent, making it unlikely that Singapore would suffer a technical recession, defined as two consecutive quarters of economic contraction. But it warned that unemployment would climb to 5.5 per cent, its highest rate since the mid-1980s, as big companies, including Singapore Airlines, port operator PSA, Neptune Orient Lines and Singapore Press Holdings cut jobs to save costs. Economists said they were confident of a recovery in the second half due to signs that the economy in the US, Singapore's biggest trading partner, was on the rebound, while Sars had been brought under control.

Singapore's central bank last month decided to ease monetary policy as it re-centred its secret policy band against a basket of foreign currencies to weaken the Singapore dollar and boost exports.The services sector, which accounts for 70 per cent of GDP, fell 13 per cent from the previous quarter and 3.1 per cent from a year ago. However, the city state has already seen a revival in its vital tourism industry, which was hit hard by the Sars virus, with tourist arrivals falling by two-thirds from a year ago. Manufacturing output declined 7.2 per cent from a year ago due to weak demand in the global electronics sector. Electronics account for half of Singapore's non-oil exports. "The feedback from tech companies is on trend for higher sales towards the end of the second half, with manufacturing leading the economic recovery," said Song Seng Wun, an economist with GK Goh Research. The composite leading index, an indicator that tracks economic activity for the next three quarters, signaled a recovery as it rose 2.9 per cent in the second quarter after falling by 1.5 per cent in the first.
Source: Financial Times