CHINA’S ECONOMY registered its slowest growth on record in the first quarter of 2009, with the world’s third-largest economy expanding 6.1 per cent. However, the data is being read as a sign that the economy is on the verge of a recovery.

Exports, the plank on which China’s remarkable economic growth of the past 30 years was built, remain sluggish. But the economy is feeling the effects of the government’s four trillion yuan (€440 billion) fiscal stimulus plan, while the banking sector is pumping almost two trillion yuan a month into the economy.

China’s cabinet, the state council, welcomed the positive signs but warned against “blind optimism” about the economy.

“The series of policies to expand domestic demand and promote stable and quite fast growth are beginning to show results,” was the view from the meeting, according to a report by Xinhua news agency.

“There are positive changes in the economy and the situation is better than expected,” said the report of the meeting, which was chaired by Chinese premier Wen Jiabao.

The Chinese government vowed to take steps to encourage private investment, which it said was too weak, and said it would study ways to attract more foreign investment.

Annual economic growth slowed to 6.1 per cent in the first quarter from 6.8 per cent in the fourth quarter of 2008, official data showed, the weakest expansion since quarterly records began in 1992. “We upgrade our 2009 GDP growth forecast to 7 to 7.5 per cent on very strong stimulus-related bank lending growth. Our 2010 forecast is unchanged at 7.5 per cent,” said UBS head of China research Wang Tao.

“While the external outlook remains bleak, there have been signs of domestic activity picking up in China, as a result of the government’s policy stimulus. The main downside risk to our outlook is a further decline in external demand.”

The world is waiting to see if China does rebound, as it would help other countries by boosting demand for their exports, though China alone is unlikely to lift the world out of the worst slump since the 1930s.

Analysts are watching to see if trade weakens more than expected or if consumer spending, housing sales and other private-sector areas fail to rebound in a sustainable way.

There were signs that the pace of the recovery accelerated last month. Fixed-asset investment in the cities rose by 30 per cent in March from a year earlier, up from 26.5 per cent growth in the first two months of this year and a sign that stimulus projects are coming online.

Industrial production grew by 8.3 per cent in March from a year earlier, accelerating from a 3.8 per cent rise in January and February.

Car sales hit a monthly record in March, while home purchases and air travel have both been rising this year after sharp falls last year.

In March, retail sales rose 14.7 per cent from a year earlier, down only slightly from a 15.2 per cent rise in January and February.