The increase speed of investment and industrial production indicated May was the best month since the outbreak of the financial crisis; however, the figures show the electric power production and enterprise savings cast doubt on the economic recovery.

According to the figures released by the National Statistics Bureau (NBS), optimists claim the economy will rebound in a short period; while some maintain the economy is likely to bottom out again or in a "W" shape.

Last month saw more contradictory numbers in the economic figures. The consumption, investment and industrial production continued to increase quickly. On the other hand, electric power production, export and producer price index (PPI) kept going down.

NBS figures showed the fixed asset investment and industrial production increased by 38.9 and 8.9 percent compared to May 2008. The investments sector increased at its highest rates since 2004, and industrial production is at its highest level in eight months.

However, the electric power production, export and PPI declined by 3.55, 24.7 and 7.2 percent compared to May 2008.

Li Yang, President of Institute of Finance & Banking, Chinese Academy of Social Sciences (CASS) said on a recent symposium that the investment increase in May only indicated that the banks released more loans to enterprises. He said, "The banks and enterprises have their plans. Under the background of surplus production capacity and economic downturn, it's reasonable for them to invest cautiously."

"It's rare that savings, especially enterprise savings are increasing at a faster speed than loans and investment," said Li.

Wang Jian, Secretary General of China Macroeconomic Society said the fact that industrial production increase rate up by 2 percentage point compared to April was not "trustful" as the electricity consumption continued to slow down. "The real increase rate may only be 5 percent," said Wang. "Electricity consumption index recovered by 0.5 percent compared to April. How come the industrial production increased so much? There may be something wrong with the statistics."

Wang's doubt was echoed by Shao Bingren, former vice president of State Electricity Regulatory Commission, who cast doubt on some local figures.

Yuan Gangming, a researcher in Center for China in the World Economy (CCWE), Tsinghua University maintained the industrial production increase rate was less than 5 percent. "The speed of economic growth and electricity consumption increase varies from two to three percentage points in other countries. However, it reached more than ten percentage point change in China."

Although the figures in May showed bright prospect, scholars and policymakers are all prudent in predicting economic growth.

Fan Gang, a member of the Central Bank's Monetary Policy Committee (MPC), said in an interview that macro policies would take effect after two or three years. "There's no need to worry about inflation right now," said Fan.

The 4-trillion-yuan stimulus package will produce an immediate effect, but the overall economic recovery depends on enterprises' and private investment. "The economy may endure a five-year recession globally. Chinese economy may recover a little earlier in a 'W' shape," said Li Yang.

Most of scholars think the current investment rise comes from the stimulus of government projects, which has a limited development potential in the future.

The figures released by the Ministry of Finance (MOF) showed that it has allocated 562 billion yuan by May 31, accounting for 61.9 percent of the central budget in 2009.

Economists think the key to economic rebound is whether government investment will encourage more private and enterprises' investment. However, the figures are not so optimistic.

The investment from non-state-owned enterprises dropped by 3.3 percent in the first quarter; and the foreign investment and those from Hong Kong and Taiwan declined most sharply.

In Li’s opinion, the private capitals are observing the economic trend and domestic macro-control and adjustment policies. "They all wait and see what's going to happen in the USA and China. Some are suspicious about the domestic policies. It takes time for macro-control and adjustment policies to be acknowledged," said Li.

In addition, the falling PPI indicated most enterprises continued to get rid of their stocks. According to Wang Jian, the figure of investment rise may be valid, as it included the unfinished projects not new projects.

Statistics showed industries with surplus production capacity, such as cement and nonferrous metals, all had a growth rate of more than 20 percent. "That will result in further surplus and imbalance between overall demand and supply," said Wang.

There are some economists remain optimistic about economic recovery. Li Daokui, Director of CCWE said the income increase in the past few years started to shore up consumption in May. The global economic growth will recover in one or two years and the Chinese economy will start to recover in 2009 or 2010, according to Li.

(China.org.cn by Huang Shan June 15, 2009)