Redundant industry

A heavy industry investment spree by local governments may threaten China's long-anticipated industrial upgrading.

Local governments throughout the country are reportedly competing with each other to launch a series of investment projects. Some regard large-scale projects as the only way to boost GDP growth.

Many are casting their eyes on the heavy chemical industry since the country's high-speed GDP growth over the past few decades has been greatly aided by its expansive heavy industrial development.

This could be a mistake; the chemical industry accounts for 70 percent of the country's total industrial output but creates only 25 percent of its job opportunities. As China continues to urbanize, there will be greater demand for services and light industries. It is worrisome that many regions still favor heavy industries.

Even some developed coastal areas are trying to shift from the manufacturing and light industry sectors, where they have already enjoy an established competitive advantage, to heavy industry.

Intensive investment has already led to overcapacity in the heavy chemical industry. According to data released by the Ministry of Industry and Information Technology, demand for the products of heavy industry has increased since the start of this year due to stimulus package-related government infrastructure projects. But overcapacity in the steel, nonferrous metal and construction materials sectors remains a serious issue. There is a total of 190 million tons of manufactured steel yet to be used, according to some estimates.

The unrestrained development of heavy industries will obstruct further development of modern manufacturing and service sectors. This will create trouble because heavy industries, especially the chemical industry, cannot sustain their prosperity in the long-term in the absence of booming manufacturing and service sectors.

Southern Weekend

(China Daily 05/18/2009 page2)