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Electric power a key indicator of economy: It's slowly rising
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Many 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 Zhejiang Province, 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 rising, assembly lines running at almost full capacity and more than 650 staff working overtime. It's in the black again.

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

With production up, Chengda uses more electricity. In the last two months, Chengda paid 70,000 yuan (US$10,248) 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 US$2," 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.

Early indicator

Power consumption is an 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 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 meant 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.

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.

Tax rebates

The government has raised tax rebates on the export of thousands of items six times since August last year. For belts, the tax rebate rate has risen from 5 percent to 14 percent.

Wang, the analyst, said the month-on-month increase in consumption, along with other indicators like rising industrial output, increasing share prices and fixed-asset investment, was a sign of economic recovery.

China's GDP grew 6.1 percent year-on-year in the first quarter, the lowest in 10 years. But the government claimed stimulus measures had produced positive results and the first-quarter performance was better than expected.

Wang, however, warns that future power consumption could fluctuate unless power use of power-consuming heavy industries, like steel and mining, stops falling and begins to rise steadily.

Citing falling electricity output in the last 10 days of March and the first 10 days of April, Wang said fluctuating power demand means economic recovery will not be easy.

The drop in power output in south China, including the biggest export province, Guangdong, accelerated in the first 10 days this month, which he interprets as a poor omen for economic recovery.

Zhou Dewen, president of Wenzhou's association of small- and medium-sized enterprises, said it's too early to talk of an overall recovery since overseas demand continues to slump.

(Shanghai Daily April 23, 2009)

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