Data shows detours on China's road to economic recovery
www.chinaview.cn 2009-05-14 18:31:37   Print

    By Xinhua writers Jiang Xufeng and Zhang Chongfang

    BEIJING, May 14 (Xinhua) -- With the world keeping close watch on the Chinese economy for signs of revival, the latest data are sending mixed signals and fueling concern that a recovery, if there really is one, is not on solid footing.

    When gross domestic product (GDP) and exports were soaring, indicators like electricity use didn't get much attention. Now, analysts are closely examining every scrap of data. But the problem is, many statistics don't seem to be giving much insight into economic trends. Old patterns are breaking down and long-standing relationships are breaking apart.

    Also, many figures for the first two months of 2009 are especially confusing, because the long Lunar New Year holiday fell in January this year, two weeks earlier than in 2008. Many statistics were only released as an aggregate figure for January and February, making it almost impossible to derive accurate year-on-year data.

    The National Bureau of Statistics (NBS) reported this week that China's industrial output rose 7.3 percent year on year in April, at the higher end of analysts' expectations.

SIGNS IN POWER DATA

    But power generation fell 3.55 percent last month from a year earlier, to 274.76 billion kilowatt hours, according to the State Grid Corp. of China. Since industry consumes about 70 percent of China's power, how do economists account for a rise in industrial production accompanied by a decline in power consumption?

    A breakdown of electricity use sheds a little light on the situation. Electricity consumption started declining on a year-on-year basis last October, when it fell 3.7 percent, the first drop since 1999.

    That was also before the government announced a 4-trillion-yuan(586 billion U.S. dollars) stimulus package in November.

    Power consumption fell 4 percent to 781 billion kw/hrs in the first quarter from a year earlier. But in March, it fell 2.02 percent, a little more than half the rate of decline in October.

    And not all sectors reported a power consumption drop. Consumption of agriculture and tertiary industry rose 5.12 percent and 7.41 percent year on year in the first quarter, respectively, according to the China Electricity Council (CEC). Residential use rose 9.88 percent.

    But industrial use declined 8.21 percent, and with exports falling, use in the manufacturing and export hubs of Guangdong and Zhejiang provinces, was "below the national average," the CEC said.

    Indeed, the latest industrial output figures for exporters also show a sharp decline last month, down 14.3 percent to 566.21 billion yuan. An export revival is evidently some ways off, and that's bound to delay an overall economic recovery.

    Zhang Liqun, a researcher with the Development Research Center of the State Council, a government think-tank, told Xinhua that exports would continue declining in the second half but at a slower pace. Zhang said the likelihood of further deterioration in the global economy was "slim" and Chinese exporters were trying to change their product mix.

    Exports fell 22.6 percent last month, the sixth monthly drop in a row. Zhang predicted that for the whole year, exports might fall about 10 percent to 15 percent.

    INDUSTRIAL RESTRUCTURING

    He noted that when looking at the decline in industrial power use, it was important to remember that industrial upgrading was still in progress. The decline of electricity consumption by heavy industry, which accounts for 82 percent of total industrial power consumption, was the leading cause for the overall decline.

    China has spent years working to scale back its smokestack industries so it can cut energy intensity by 20 percent and major emissions by 10 percent between 2006 and 2010.

    China plans to eliminate 15 million kw/hrs of power provided by small coal-powered plants, as well as obsolete capacity of 10 million tonnes in the iron industry and 6 million tonnes in the steel industry this year.

    The first-quarter output growth rate of the six most energy-intensive sectors (iron and steel, nonferrous metals, building materials, petrochemicals, coking and chemicals) fell 12.5 percentage points on average from a year earlier, to 2.3 percent, NBS figures showed.

    Power use by those sectors also showed large declines: iron and steel (10.24 percent), chemicals (13.14 percent) and nonferrous metals (16.78 percent) in the first quarter, according to the CEC.

    Meanwhile, efforts to upgrade and rebalance industry showed progress in the first quarter, with tertiary industry's weight in the economy up 1.6 percentage points and secondary industry's weight down 1.9 points.

    HOME, CAR SALES BRISK

    Despite discouraging data on the industrial front, policy makers have taken heart from consumer behavior in recent months, which seems to show that the effort to get more economic growth out of domestic demand and less from external factors is succeeding.

    GDP expanded 6.1 percent in the first quarter, and the domestic consumption provided the largest share at 4.3 percentage points, accounting for 70.5 percent of the total growth. Investment generated another 2 points, accounting for 32.8 percent of the total growth, while the decline in exports shaved 0.2 point of the total, according to NBS figures.

    The economy expanded by 10.6 percent year on year in the first quarter of 2008. Consumption accounted for 44.4 percent of total GDP growth, with investment generating another 46.7 percent and exports providing the remaining 8.9 percent of the total, according to Zhu Baoliang, an expert with the NBS.

    China has become the world's largest vehicle market, with more than 2.67 million cars sold in the first quarter, up 3.88 percent year on year.

    Car sales were buoyed by government stimulus policies, said Zhang Yunpeng, an analyst with Beijing-based Huarong Securities. In January, China halved the purchase tax on passenger cars to 5 percent for models with engine displacements of less than 1.6 liters.

    More than 1.15 million vehicles were sold last month in China, up 25 percent in terms of units, while sales in the United States fell 34.4 percent year on year to 819,540 units, according to the China Association of Automobile Manufacturers.

    Other NBS figures this week showed that retail sales rose 14.8 percent in April year on year to 934.32 billion yuan, and the 18.5 percent monthly vehicle sales growth in terms of sales revenue dwarfed other items by 3.7 percentage points.

    Private-sector housing sales rose 8.2 percent year on year in 70 mid-sized and large cities in the first quarter, including Beijing, Shanghai, Guangzhou and other metropolises.

    "Auto and home sales were the most important consumption sectors and their revival showed a trend of consumption recovery in China. This would stimulate the growth of related industries," said Zhang Liqun.

    Boosted by the surge in housing transactions, sales of construction and interior decoration materials rose 10.8 percent in April from a year earlier, according to the NBS.

    MORE CONFIDENCE, TIME NEEDED

    Zhuang Jian, a senior economist with the Asian Development Bank office in Beijing, told Xinhua that although sales of cars and homes had picked up in recent months, Chinese consumers needed to have more confidence before they would spend and invest more. The government needed to take new, responsive measures as new situations emerged.

    Zhuang also noted that contradictory data had been seen from time to time in earlier years in China, when the country's economy was maturing, and there still might be some difficulties ahead.

    He added that it had only been half a year since the major stimulus plan was announced and it would be wise to wait for another quarter to see the effects of the stimulus package.

    "The stimulus has already paid off, with rising investment in government-supported projects. As the weather in the second quarter is more suitable for construction work, we can expect this type of investment would continue to grow," Zhang Liqun said.

    China's fixed-asset investment jumped 28.8 percent to 2.81 trillion yuan in the first quarter. The growth pace accelerated further to 34 percent in April.

    STOCK MARKET UPBEAT

    Stock market investors are interpreting the economic data positively. The benchmark Shanghai Composite Index was up more than 44 percent this year as of Wednesday.

    Zhang Liqun said that after last year's plunge, when the market sank more than two-thirds from its peak in mid-October 2007, equities had rallied along with regional markets. Investors had gained confidence that an economic recovery was at hand.

    Analysts said they expected further gains in shares, car sales and housing transactions in the coming months, but they warned that economic data could still be confusing and disappointing.

    The ADB forecast in a March report that China's economy might grow 7 percent this year.

    "Judging from current conditions, economic growth might even exceed that forecast," Zhuang said.

Special Report:  Global Financial Crisis

Editor: An
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