News Analysis: Chinese economy shows encouraging signs amid downward pressure

The Chinese economy showed signs of encouragement as the latest key economic indicators improved, easing pessimism stemming from lingering downward pressures and a volatile capital market.

China's top economic regulator, the National Development and Reform Commission (NDRC) on Sunday announced better-than-forecast nationwide power use and railway freight figures ahead of schedule to reassure markets.

China used 463.34 billion kilowatt hours of electricity from Aug. 1 to 28, up 2.97 percent year on year. The growth rate was higher than that of July and the equivalent period last year.

The increase was backed by major power users, including Jiangsu, Guangdong, Anhui and Jiangxi provinces. Leading the rise, Jiangsu saw electricity consumption rise 8.43 percent boosted by robust demand from manufacturing, petrochemicals, textiles and construction materials.

The NDRC expects total power consumption to grow 3 percent for all of August and to continue to climb in September.

Rail freight companies moved 1.2 percent more cargo than a year ago as the need for coal, steel and oil stabilized, the NDRC said.

Power use and rail freight are two advanced indicators for the economy, and their rise suggests more rapid growth in industrial output and a rising trend in the broader economy.

Confronted with slack trade and sluggish consumption, the world's second largest economy is still plagued by downward pressure.

Lackluster economic data in July have sparked worries about growth momentum. The producer price index saw its largest year-on-year drop in over a year, while industrial profits fell faster than the previous month.

Fluctuations in Chinese shares and a depreciating yuan during the past two weeks posed new challenges to China's policymakers amid the global financial turmoil.

Premier Li Keqiang said on Friday during a special meeting of the State Council, China's cabinet, that the economy is still operating within a proper range and has great potential for further development, and China is capable of managing and controlling risks.

The Chinese economy held steady in the second quarter against global headwinds with the GDP expanding 7 percent year on year, in line with the official growth target but still the lowest reading since the global financial crisis.

Li said the government will conduct more targeted and responsive macro-regulation to offset downward economic pressure, and will continue to implement proactive fiscal policy and prudent monetary policy.

UBS chief China economist Wang Tao said the central bank is likely to cut the benchmark interest rate again late this year to further reduce costs.

In a bid to reduce funding costs and bolster the real economy, the People's Bank of China has cut the reserve requirement ratio and interest rates four times this year.

Shen Jianguang, chief economist at Mizuho Securities, expects bolder fiscal measures as the government has promised to expand fiscal deficits in an appropriate manner in the latter half of the year to boost growth.

China's top legislature has approved the expansion of a debt swap program for local governments worth 3.2 trillion yuan (500 billion U.S. dollars) in 2015.

In addition, Li said China will continue to promote financial reform and opening-up and at the same time enhance risk management to prevent regional or systemic risks. Endi