Power use signals Chinese industry slowdown

John Garnaut in Beijing
December 5, 2008

CHINA'S industrial economy appears to have skidded to a new low last month, with power production suffering the sharpest drop since the beginning of reforms 30 years ago.

Reuters reported that power generation fell 7 per cent in November from a year earlier, citing an unnamed source. It follows a 4 per cent fall in the year to October.

The figures show a sharper drop than during the Asian financial crisis in the late 1990s. Until earlier this year annual power production had been growing at about 15 per cent. This implies a similarly spectacular fall in global coal demand as well as sharp falls in production of steel, aluminium and other electricity-intensive goods.

This means commodity prices, which have a big effect on Australia's national income, may have further to fall. If the power production fall is confirmed in the official data, due on December 15, China's economy may be in far worse condition than most analysts fear.

Economists say it is unlikely that the whole Chinese economy is contracting because heavy industry, which consumes three-quarters of the country's electricity, has suffered disproportionately in the current downturn.

The collapse in heavy industry has only a small direct impact on employment. The party is more concerned about the looming collapse in exports, as China's key markets sink deeper into recession. Millions of migrant workers are returning home from the coastal, export-intensive provinces of Guandong and Zhejiang provinces as manufacturers close their doors.

On Monday one researcher told a closed seminar at a top government think-tank that as many as 20 million migrant workers had already returned to their villages.