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Tuesday, April 21, 2009

China's economy still waiting to return to full power

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BEIJING, April 20 (Xinhua) -- Most people are alarmed when their power bills rise. But Wang Wenxu has been happily watching electricity consumption increase at his company for the last two months.

Belt maker Chengda Belt, where Wang is a senior manager, is based in the city of Wenzhou in eastern China, home to almost 300,000 small and medium-sized private export firms that manufacture everything from shoes to sunglasses for consumers around the world.

Since the end of the Chinese Lunar New Year, Chengda has seen overseas orders rise, assembly lines running at almost full capacity and more than 650 staff working overtime. More importantly, it's in profit again.

"In the last two months, total orders are 1 to 2 percent more than the same period last year," Wang says.

With production up, Chengda uses more electricity. In the last two months, Chengda paid 70,000 yuan (10,248 U.S. dollars) for almost 70,000 kilowatt-hours of power to produce up to 1.35 million belts each month.

In contrast, late last year when China's export industries were hard hit by plunging global demand due to the financial crisis, Chengda consumed just 20,000 kilowatt-hours a month.

"At that time, our foreign orders dropped by more than 40 percent. We produced about 600,000 belts a month and for every belt, we lost 2 U.S. dollars," Wang said.

At peak times before the export slump, Chengda consumed more than 80,000 kilowatt-hours of power and produced about 1.5 million belts a month, 80 percent of which were shipped to American and European markets.

Power consumption is a closely watched early indicator of the vitality of China's economy, because so much of the country's growth relies on power-intensive industries such as steel, aluminum and chemicals. Power consumption closely tracks the true pace of industrial activity since industries account for 74 percent of the total.

As many factories like Chengda resume production at part or full capacity, China's power consumption has picked up gradually in the last two months, in one of the key indicators that economists and officials said the Chinese economy had bottomed out.

The China Electricity Council (CEC) announced on April 14 that power consumption stood at 283.4 billion kilowatt-hours in March, a drop of 2.01 percent from a year earlier, but a jump of 15 percent from February's 245.5 billion kilowatt-hours.

In the first quarter, power consumption totaled 781 billion kilowatt-hours, down 4.02 percent from a year earlier, a milder decline than the 5.22 percent year-on-year slump in the first two months.

The CEC figures show China's monthly power consumption began to contract in October last year, when the country consumed 269.9 billion kilowatt-hours, a decline of 3.7 percent year on year.

In the following two months as the global financial crisis hit harder, the downward pace of demand accelerated. In November, consumption was 256.2 billion kilowatt-hours, down 8.6 percent, and in December it was 273.7 billion kilowatt-hours, a drop of 8.93 percent.

Wang Zejun, an industry analyst with Beijing-based Huarong Securities, said consumption rose in February and March as construction began on many projects in the 4-trillion-yuan stimulus plan.

It was also a result of a series of aggressive measures taken by the government to stimulate the economy, including export tax rebates, which allowed Chengda Belt to raise profit margins while slightly cutting prices.

Wang Wenxu says that rise in orders is partly due to the closure of many smaller belt-making companies since late last year and overseas buyers moving orders to bigger firms like Chengda.