Bloomberg News

Eaton CEO Says China GDP Report Overstates Growth Rate

February 05, 2013

China’s official 7.8 percent economic growth for 2012 may have overstated expansion by twice the real rate, and is only now headed for a “legitimate” 8 percent gain, Eaton Corp. (ETN:US) Chief Executive Officer Sandy Cutler said.

Based on indicators such as consumer consumption and electric power usage, China’s gross domestic product probably grew 3 percent to 4 percent last year, Cutler said yesterday in a telephone interview. Growth is accelerating now that China is past the distractions from its leadership change, he said.

“That’s what we and so many multinational companies have been feeling there in China for the last year and a half, the economy really hasn’t been growing at 7 or 8 percent,” Cutler said. “If we could get back to an 8 percent growth rate in China for 2013, that would be a pretty darn good year.”

His skepticism about the data echoes complaints from economists such as Li Wei of Standard Chartered Plc in Shanghai that China had inflated third-quarter growth before the November congress where the ruling Communist Party had its decennial transfer of power. Cutler runs a manufacturer that got more than half its 2012 revenue of $16.3 billion from outside the U.S.

Mark Williams and Qinwei Wang, economists with Capital Economics Ltd. in London, wrote in October that China’s third- quarter economic growth of 7.4 percent was “implausible.” Standard Chartered said in October its analysis indicated the economy expanded 6.5 percent in the quarter.

New Leader

China’s government reported that GDP growth decelerated from 9.3 percent in 2011 and 10.4 percent in 2010. Xi Jinping became Communist Party general secretary in November.

China tended to “tamp down” reported GDP expansion as it ran at 12 percent or more in 2006 and 2007, Cutler said. The government boosted the official tally after slowing growth to quell inflation, said Cutler, 61, whose businesses at Eaton include hydraulic equipment, aerospace parts and drive trains for trucks.

“Coming out of the 2008 recession when they had this huge stimulus program, the economy got really hot and they had to cool it off,” Cutler said in an interview following Eaton’s quarterly earnings report. “Now that the new government has been seated, you’re more likely to see the preconditions for more growth in China.”

China’s economy is likely to gain strength as the year unfolds, Cutler said. Orders for hydraulic parts from construction-equipment makers are beginning to pick up, he said.

In the U.S., housing and non-residential construction will help drive economic growth of about 2 percent, Cutler said. Eaton, which completed the purchase of Cooper Industries Plc (CBE:US) on Nov. 30, sells electrical equipment for home and commercial construction, giving it a good glimpse into future demand, Cutler said.

To contact the reporter on this story: Thomas Black in Dallas at tblack@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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