This is another in our series of reports that come from my Camp Kotok friends. I have long been a friend of Leland Miller. He puts out (along with a substantial host of compatriots) something called the China Beige Book each quarter. Basically they interview (if memory serves me correctly) about 2000 large Chinese companies in every sector to get a good idea of what is actually happening in the Chinese economy. There is nothing else like it, and anybody who is investing large sums or who just does business in China gladly plays the six-figure price to get access to their data and research.
 
Even this quarterly brief that I attach is embargoed, and I am generally not allowed to send it on. Leland made an exception this time (after consultation with his partners) because of the Camp Kotok theme. Just for the record, you would have to spend well over $200,000 to get access to the research I have sent you in the past few weeks (of course, that's on an annual basis). Just wanted you to know you are getting your $179 a year’s worth.
 
Now I'm going to copy and paste the email intro that Leland sent me, which has some qualifiers and insights. I should note that in our recent conversations Leland was more upbeat about China than he has been in a few years. That is not saying that he'll be that way next year, but the facts on the ground right now are all pretty good. Now let's go to Leland:
 
John,
 
As promised, here is our Early Look Brief from last quarter.  Per the usual, it was released ten days before the end of the quarter, which makes it the earliest look in the world at the current quarter's data.
 
A lot of this now seems consensus – as all good assessments should in hindsight – but if you recall at the time (mid-to-late June) there was growing sentiment that (1) the economy had already peaked for 2017 and was now starting to slow; (2) deleveraging was having a major effect on corporates; and (3) the commodities sector had likely peaked in Q1 and was now in slowdown mode as well.  Our data undercut all of these.
 
Moreover, the steel and especially aluminum rallies which we wrote about at length back then are still going strong. (We took a lot of heat for those calls initially, because the consensus at the time was that April's volatility, coupled with the deleveraging campaign, meant commodities had seen their inflection point months earlier.)
 
One other thing to note: we're the only firm in the world able to track 'changes in net capacity' across coal, aluminum, steel and copper in China.  This is important, because all our recent metals bullishness notwithstanding, we think markets have badly misunderstood the supply side picture for all of those sub-sectors, and continue to do so.  Our data show quite convincingly that Beijing is *not* cutting overall capacity the way most analysts think they are... and this realization is likely to cause commodities investors some serious pain in 2018.
 
Happy to discuss any particular points, overall or related to commodities.
 
Leland