Industrial Output in China Plummets 6.1%

China announced its biggest drop in industrial production in a decade, saying January’s output value plunged 6.1% from a year earlier.

Foreign diplomats said the fall, announced Friday, showed that China’s 18-month-old austerity program is driving the economy into stagnation and added that the government might soon be forced to ease its tight credit policy.

The China Daily newspaper quoted new figures from the State Statistical Bureau showing that industrial output in January fell 6.1% to $27.2 billion (127.8 billion yuan).

It was only the second time that monthly industrial output had fallen in 10 years of economic reforms. The first drop was in October last year, when production slipped 2.1%.

The State Statistical Bureau attributed the slump to China’s spring festival, which occurred in January this year but in February last year.

“During the holiday, all enterprises’ employees throughout the country usually have a leave of three to four days from their work,” said the newspaper, quoting the bureau.

Diplomats agreed that the holiday had depressed output to some extent, but said the figures were worse than expected and would increase pressure on the government to stimulate the economy.

China began its austerity program in September, 1988, to rein in runaway inflation. It has succeeded in bringing down annual inflation from a peak of 25.5% in early 1989 to about 7% now.

But industrial output and efficiency have plummeted, forcing the government to support more money-losing state-owned companies while continuing to fork out wages for idle workers and benefits to swelling ranks of unemployed.

Production of some consumer goods dived. Refrigerator output fell 58.5%, and washing machines, color televisions, bicycles and automobiles slumped by 40% to 50%.