As the world keeps close watch on the Chinese economy for signs of revival, the latest data are sending mixed signals and fueling concern that a recovery is not on solid footing.

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

But power generation fell 3.55 percent last month from a year earlier, to 274.76 billion kwh, 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 before the government announced a 4-trillion-yuan (US$586 billion) stimulus package in November.

Power consumption fell 4 percent to 781 billion kwh 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.

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 many 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.

This year China plans to eliminate 15 million kwh of power provided by small coal-powered plants, as well as obsolete capacity of 10 million tons in the iron industry and 6 million tons in the steel industry.

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, statistics bureau 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 official figures.

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.

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 has paid off somehow.

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 official 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 statistics bureau.

Brisk car sales

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.

Other figures last 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.

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.

In his view, it was only 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.

(Shanghai Daily May 18, 2009)