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Energy

China's power production numbers hint at economic contraction

Double-digit drop in electricity output bodes ill for first quarter GDP

TOKYO -- The latest numbers from China's state-owned power generators and the coal miners that supply them point to zero or even negative first-quarter growth for Asia's biggest economy.

The data comes as China is due to release its GDP figure for January-March on Friday. Authorities have been keen to paint a picture of economic recovery from the devastating coronavirus outbreak, but figures showing a sharp drop in power generation -- the basis of economic activity -- tell a different story.

Huaneng Power International, the largest listed Chinese power generator by capacity, announced on Wednesday evening that the group's total power generation within China during the first quarter dropped 18.45% on the year to 84.676 billion kilowatt-hours. This marks a further fall from the company's 5.91% drop in power generation to 405.006 billion kWh last year.

Huang Chaoquan, secretary of the board at the Hong Kong-listed company, attributed the sharp fall to the virus, saying in the Wednesday filing to the exchange that "the electricity consumption of society as a whole incurred a relatively large negative growth." He also pointed to the geographic factor, explaining that the company's plants are "distributed more in East China and Central China, where outbreaks were severe, so the power generation of the company is greatly affected." Indeed, its power generation in Hubei Province, the epicenter of the global pandemic, fell 36.9% to 3.566 billion kWh.

China Resources Power Holdings, a Hong Kong-listed peer, also released power generation data on Wednesday evening, revealing a year-on-year fall of 12.48% in the first quarter to 41.659 billion kWh, including all its subsidiaries and associates. For CR Power, the situation in Hubei was even more severe, where its coal-fired plants dropping 42.32% to 2.685 billion kWh.

Its March data was bleaker. According to the company, its total power generation last month was 13.192 billion kWh, down 13.76%.

Shanghai Electric Power, a core arm of State Power Investment Corp., also saw a decline albeit less steep. The Shanghai-listed company revealed on Wednesday that its consolidated electricity production came to 11.234 billion kWh during the first three months, a 11.18% decrease from a year ago.

China Longyuan Power Group, a Hong Kong-listed electricity producer under China Energy Investment Corp., fared better. It announced last Thursday that its quarterly power generation rose 0.99% from last year to 13.692 kWh, while its March figure showed an 8.6% increase to 5.351 kWh.

The overall gloominess, however, is underscored by sales of coal, which China relies heavily on for power generation. Huaneng, for example, generated 89.5% of its electricity during the first quarter from carbon combustion.

China Shenhua Energy, the country's largest coal miner and a sister company of China Longyuan, revealed on Wednesday evening its sales of coal during the first three months dropped by 6.4% to 98.4 million tons. The company saw a slight recovery in March, with 41 million tons sold, a 2% increase from a year ago.

Data from China Coal Energy, another state-owned miner, saw the opposite trend. Its Wednesday evening disclosure said its quarterly sales of coal rose 0.6% to 50.6 million tons, but dropped 9.0% in March to 16.37 million tons.

Power generation is a useful proxy for measuring economic activity, particularly in a country where official statistics are often met with skepticism. Premier Li Keqiang, when he was heading the northeastern province of Liaoning, reportedly included electricity as one of the three proxies -- along with railway cargo and bank loans -- that he used to gauge the real state of his country's economy.

Economists were already downbeat about GDP growth for the first three months. The quarterly survey conducted by Nikkei and Nikkei Quick News in late March indicated that the consensus view of 29 economists based in Hong Kong and mainland China was a 3.7% contraction on a year-on-year basis in January-March, marking the first negative growth since 1992.

As more data, such as power generation, comes out, expectations are turning bleaker.

"In our view, markets might still be too optimistic about the recovery in China," Ting Lu, chief China economist at Nomura, wrote on Wednesday. Although acknowledging the "initial success" in containing the virus, he sees two major challenges, namely "falling external demand due to the pandemic and the rising threat of a second wave of the virus." He expects a 9% drop in Q1, with negative growth to drag on in Q2.

Mark Williams, chief Asia economist at Capital Economics, has an even dimmer view. "Despite evidence of a recovery last month, output still looks to have been lower than the average across the first two months of the year," according to a note published on Wednesday evening. He and his team of China economists now predict Q1 GDP to have contacted by 16% on a year-on-year basis, and the full year to fall by 5%, which will be the first annual contraction since 1976, the year when both Mao Zedong and Zhou Enlai died.

"What is now holding back the economy is a lack of demand, in our view," said Aidan Yao, senior emerging Asia economist at AXA Investment Managers. Observing the economy through its proprietary indicators, including coal consumption by power generators, he saw "no notable changes" as of Wednesday. "And many companies don't expect full normality to return until the second half of the year," he added.

The latest warning came on Thursday morning from BAIC Motor, one of the largest automakers in the country. Similar to its peers, the joint venture partner with Daimler and Hyundai Motor said its first quarter net profit dropped by approximately 95% compared to a year ago, blaming the virus as well as the lack of demand for cars that persisted for the past few years.

The Hong Kong-listed and state-owned manufacturer applauded the government's effort on the contagion control, saying there has been a "positive and improving trend," but added the situation "remains uncertain [and] still unable to exclude the possibility that the outbreak will cause further impact on the Group's operating results."

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