Experts: China's Economy in Direction of Inflation

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Last updated at: (Beijing Time) Wednesday, August 13, 2003

Experts: China's Economy in Direction of Inflation

Senior economic officials warned Monday that an overheating of the steel, aluminum, cement and automobile sectors could have a serious impact on the entire economy.

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Senior economic officials warned Monday that an overheating of the steel, aluminum, cement and automobile sectors could have a serious impact on the entire economy.

National Development and Reform Commission (NDRC) Minister Ma Kai warned: "If not cooled, the investment fever in some industries will heavily affect China's robust economic growth.''

Excessive growth in some sectors is putting a strain on transportation and power supplies, driving up the prices of raw materials and damaging industries across the nation, warned the NDRC -- China's top economic management body.

Ma said many of the newest projects rely on outdated technology and equipment, affecting their ability to control pollution. They also have a tendency to consume high levels of energy.

Lin Yueqin, an economic researcher with the Chinese Academy of Social Sciences said the automobile sector is a typical example of the unpredictable situation, with existing producers competing with each other to expand their production capacity.

Small scale and weak independent development capabilities were some of the problems, with around 70 of the 123 plants capable of producing whole vehicles manufacturing less than 10,000 units each per year.

Meanwhile, local governments are all eager to launch new auto-related projects, said Lin.

"We should not have redundant, low-level construction going on in the auto industry,'' said Lin, adding that the sector's "healthy'' development was of primary importance.

During the first six months of this year, production and investment in the steel and iron sectors grew by 21 per cent and 130 per cent respectively, following last year's rapid growth.

Small iron and steel works, which were closed by local governments because of pollution and inefficiency, had resumed production, but their products remained of poor quality, while products such as cold rolling sheet steel and galvanized sheet steel were in short supply, said minister Ma.

Cement plants using outdated technological production processes accounted for 60 per cent of China's total, yet some new plants under construction chose the same technology.

China has also called for calm in the aluminum market. Nine provinces and autonomous regions in central and western China have made the aluminum industry the pillar of their local economies, while another five provinces and autonomous regions are also expanding their production capacities.

To solve the problem of redundant investment, Lin said reform of the investment and financing system is essential.

"Investors, not the government, should have the decisive say in launching new projects,'' said Lin.

In China, many redundant projects were launched just because provincial and local government officials have been busy fishing for fame and seeking promotion, without careful and rational research and consideration.

In a bid to curb excessive investment, the commission will continuously publish information on supply and demand in these sectors, and projects under construction, improve the market entry system, and close down illegal plants and those producing inferior products and causing serious pollution.

The commission also planned to co-operate with the banking sector in order to restrict loans to firms deemed to have high energy consumption and pollution, using outdated technology or neglecting industrial safety. (China Daily News)

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