The power distribution stations of the State Grid and China Southern Power Grid reported falls in power generation in March, a source close to the grid companies said on April 3.

Power generation is considered a key economic indicator as it tends to vary in step with industrial activity.

State Grid power distribution was 0.7 percent down year on year in March. Overall Q1 consumption fell 2.2 percent year on year. State Grid distribution stations record 60-70 percent of China's power consumption and the figures indicate the economy is not yet showing signs of a robust recovery.

The Guangdong Grid reported a decline of 3 percent, while the East China Grid which covers Jiangsu, Zhejiang, Anhui, Fujian and Shanghai registered a 4 percent fall.

The reduction in power consumption in March is being attributed to a decline in demand from heavy industry.

Data published by the Federation of Logistics and Purchasing (CFLP) on April 3 shows the Purchasing Managers' Index (PMI) in steel, non-ferrous metal, and three other heavy industries fell below 50 percent, indicating these industries are shrinking.

Senior CFLP economist Gao Wei said both the reduced demand for power and the PMI data reflect a sluggish economy.

CFLP put the country's overall PMI for March at 52.4 percent, a modest 3.4 percent increase over February.

"We will have to keep an eye on next month's trend. If PMI continues to rise for a few months, we can pronounce that the economy is on the way to recovery. Otherwise another stimulus plan will be needed," said Gao Wei.

Some sectors are doing relatively well. The PMI for electronic machinery equipment manufacturing reached 60 percent in March.

But export activity still remains depressed. The export orders index registered 47.5 percent in March, up 4.1 percent over last month. But of 20 industries monitored, only six, including electrical equipment manufacturing and tobacco reported growth, while the remaining 14, including automobiles, reported figures under 50 percent. The steel sector figure was just 30 percent.

From April 10 to April 12 the National Development and Reform Commission and the Ministry of Industry and Information Technology will meet with the Statistics Bureau and officials from various industries, including steel, automobiles, coal and textiles, to share opinions about the state of the economy.

The State Council has also scheduled an executive meeting to review the Q1 economic results and decide if further stimulus plans are necessary.

(China.org.cn by Maverick Chen, April 9, 2009)