China Metals Slowdown Hinted At

In a sign that central planners in China may soon scale back metals industry activity there, the State Development and Reform Commission of China has “called for a cool-down of overheated industrial sectors such as steel, aluminum, cement and automobile manufacturing,” according to a report in the China Daily.

The Beijing-based newspaper reports that commission official Ma Liqiang has “warned that if the surge in investment and production in these sectors could not be slowed, it could greatly affect China's robust economy.”

The Chinese government is currently claiming an annual economic growth rate of 8.5 per cent during the first three quarters of this year.

The growth in the steel and iron sectors has far outpaced overall growth. The commission has gathered data showing production and investment in the steel and iron sectors grew by 19.4 per cent and 120 per cent respectively during the first nine months of 2003.

According to the China Daily report, smaller mills and foundries may be targeted for closure by the government. “Small iron and steel works, which were closed by local governments because of pollution and inefficiency, have resumed production, but their products remained of poor quality,” the report states.

The State Development and Reform Commission is claiming that “excessive growth in some sectors is putting a strain on transport and power supplies, driving up the prices of raw materials and damaging industries across the nation.”

Ma is quoted as saying that many of the targeted mills rely on “outdated technology and equipment, affecting their ability to control pollution. They also have a tendency to consume high levels of energy.”

Another official with the commission has issued similar warnings to foundry and smelter operators in the aluminum sector.

Official Jia Yinsong says aluminum production capacity is expanding “too fast,” and that the government must “maintain a prudent attitude on (new) projects for aluminum smelter construction.”

The news report says the government is already taking measures by limiting approvals for new smelters, restricting financing for new projects, and by closing factories deemed environmentally unsound.

Additionally, an economic researcher with the Chinese Academy of Social Sciences is quoted in the report as saying the automobile sector is “another example of an industry under pressure, with existing firms competing to expand their production capacity.”

Local governments eager to launch new auto-related projects could be creating an overcapacity situation, according to Lin Yueqin from the academy. He calls for “the investment and financing system [to] be reformed.”