A recent article published on Commodity Online says ‘China’s automobile sector to grow 15% annually till 2016’ – reading time 2 minutes.  The compound growth rate reported in the body of the article is 15.9%, from revenue of U.S.$386 billion in 2011 to revenue of U.S.$806 billion by 2016.  I recalculated the numbers to satisfy myself that a 15.9% compound growth rate over a five year period indeed results in a slightly more than doubling of revenue from the current reported annual revenue amount – it does.

The article reports this 15.9% is down from the reported average auto manufacturing revenue growth of 23.9% experienced over the past five years.  That said, 15.9% on a larger ‘base number’ is far more when expressed in absolute dollars than is 23.9% on a much smaller ‘base number’.  To put that in perspective, I calculated what China’s base auto manufacturing revenue must have been in 2006 for a 23.9% compound growth rate to be realized through 2011.  The answer:  U.S.$132 billion.  This means that over the past 5 years China’s auto manufacturing revenue has increased by a ‘simple average’ of about U.S.$51 billion, but is expected to increase over the next five years by a simple average of about U.S.$84 billion – or an increase of about 65% per year based on simple average comparisons.  I have made these calculations and included them in this commentary to  once again demonstrate that the ‘devil is in the detail’, and that reliance on percentage comparisons (which is how most economists report and seem to think) often is misleading in the context of ‘absolute numbers’.

The foregoing is combined with a statement in the article (which I have read similar versions of elsewhere) that “China surpassed the United States as the largest automobile market in the world in 2009”.  To me this suggests that ‘all things equal’, and depending on the validity of the underlying world and Chinese specific macro and micro economic assumptions used by IBISWorld (the group reported by the article to have generated these statistics and forecasts), China’s appetite for the automobile (and presumably other on and off-road vehicles) will be positive for steel, zinc, and other auto-required resources demand through at least 2016.

All that said, I nonetheless suggest you read the previous paragraph very carefully.  Unless forecasters clearly state the underlying macro and micro economic forecasts on which any specific forecast (autos or whatever) are based, or commentaries that re-report those forecasts don’t state the forecaster’s underlying macro and micro economic forecasts, forecasts as reported are really for the reader a form of ‘unsubstantiated report’ that while interesting, ought to be researched further if they are important to one’s investment strategy and analysis.  Something to think about as you read media reports and commentaries.

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