"The recovery indicates that any dip in China's economic growth won't be deep," said a spokesman for the State Council's Development Research Center according to local media. Output was boosted by recent moves from Beijing to loosen loan quotas, cut borrowing costs, and increase export-tax incentives for key producers, the spokesman was reported to have said.
Reports did not address the impact of the return to production of thousands of factories that had been shut during the Beijing Olympics.
Meanwhile, other indicators, including lower Chinese demand for commodities, may suggest a different story to the official productivity data.
A drop in Chinese demand for Indian iron ore, for instance, was blamed for a forecast 33 per cent decline in India's exports of the raw material. China normally buys 75 per cent of India's iron ore exports, and the potential for a steep slide in Chinese demand prompted Indian government ministers to discuss slashing export duties to help their iron mining industry, according to reports.
Also, in Taiwan, the state-run oil refiner, said it is delaying the scheduled restart of one of its processing plants after regular maintenance as demand from China wanes.
"Demand from China is much worse than expected," an official from the refiner told Bloomberg News. China which is Taiwan's biggest overseas market, is buying less of all of the island's petrochemical products, the official said.
Simon Powell, an energy analyst with Hong Kong-based broker CLSA, said slowing energy demand is another sign China's economic growth is beginning to flatten out.
China's power demand has been growing at about 15 per cent annually in recent years but the growth will be only about 10 per cent this year, Powell said at a briefing for media last week. Some, but likely not all of the slowdown in energy demand can be explained by the closure of factories in the run up to the Olympics and the impact of the Sichuan earthquake, he added.
Meanwhile, Chinese state media this week reported the country's leaders, including Premier Wen Jiabao, are confident about China's long-term economic growth, while acknowledging the potential impact of a global economic slowdown. The head of China Banking Regulatory Commission forecast annual economic growth would slow to between nine per cent and 9.5 per cent from 11.9 per cent last year, as falling consumer spending in Europe and the United States cut export demands.
If exports do fall as expected, China may be able to replace some foreign demand for its production with internal demand. A report from Standard & Poor's Ratings Service said China is the only major East Asian economy that "has the muscles to push short-term growth domestically."
"China is counting on its strong domestic demand to pull its economy ahead this year and next," said Standard & Poor's credit analyst Kim Eng Tan, in a report. Tight labour market conditions, together with new labour laws, will keep pushing wages higher in China, which should offset high inflation and keep consumer spending growth strong "at least until early 2009," Tan said."
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