Hosing down steel mania
Xin Zhiming  Updated: 2004-03-13 08:30

Tangshan, an otherwise anonymous city in North China's Hebei Province, if not for the catastrophic 1976 earthquake that claimed 240,000 lives, recaptured the limelight recently due to its glut of steel furnaces.

By 2002, there were more than 300 steel mills in the city alone, most of which were erected in recent years. And steel production has become the economic lifeline of some regions under its jurisdiction.

Tangshan, thus, risks becoming China's "melting pot" - but obviously not because it accommodates people from different cultural backgrounds.

And several other regions are no slower on the uptake than Tangshan. Shandong, Jiangsu, Shaanxi and Shanxi, to name but a few provinces, are all poised to create, or are creating, new steel programmes.

Experts estimate that new projects under construction will be capable of producing 120 million tons of steel. The capacity of Japan, the second largest producer of the world, was 110 million tons last year.

It is predicted that if China does not put on the brakes, its steel yield will hit 330 million tons by 2005, up from the current 220 million tons.

Media commentators say the new boom is linked to the frenzied nationwide campaign to churn out iron and steel during the idealist Great Leap Forward (1958-60).

One need not be an erudite historian to recall the old, drama-laden days when virtually all Chinese were embroiled in the great tide of iron and steel making.

For anyone who dabbles in historical literature, anecdotes or other memoirs involving that special period of the people's republic, he or she would understand more acutely the current situation facing the country's red-hot steel industry.

But the development periods are so different.

A nostalgic, elderly person with a good memory may be ready to relate the feisty political story of mobilizing people to make use of all possible resources, including cooking pots, to melt steel on their home-made blast furnaces to "overtake Britain in 15 years."

The goal, sadly and inevitably, proved to be more a political slogan than an obtainable goal.

The current steel production wave, however, is not politically driven, but market-oriented.

Boosted by the surging consumption of cars, household electrical appliances and property, the prices and profits of the steel industry have been growing steadily.

In January, steel product prices rose between 17.2 per cent and 33.1 per cent compared with the same month last year. And last year, the profit margin increased by 44 per cent year-on-year, making China one of the fastest growing industries in the world.

All this is thanks to a huge amount of investment. From January to November last year, the fixed-asset investment doubled compared with 2002.

Motivation is not the sole difference.

While the current steel craving is backed by an expanding, strong economy, the failed movement in the late 1950s was against the backdrop of a new, fledgling nation fumbling along its socialist path.

Falling short of scientific production methods, the movement failed to produce quality steel products but useless iron and steel chunks.

New producers like those in Tangshan, however, are free of the technological bottleneck thanks to the free market system that encourages technological flows.

Their products may not be on par with those stellar brands of big State conglomerates, but they are not shoddy either.

The government recently called for stricter industry regulations. It was not because policy-makers can no longer put up with the poor quality - things are not so bad - but because the sprawling furnaces risk menacing the health of the national economy.

It was not long after the release of figures for the sizzling national economy, which registered 9.1 per cent gross domestic product (GDP) growth last year, that alarmist economists warned of the danger of inflation and economic overheating.

The culprits for the possible overheating, they said, included the steel industry. Despite being labelled watchful, statistics partially support their view.

Driven by rapid economic growth, particularly investments, the consumer price index growth accelerated in the second half of last year, from below 1 per cent to 3.2 per cent in December, the biggest since April 1997, when it was also up a year-on-year 3.2 per cent.

The National Bureau of Statistics estimates that the inflation rate may reach around 3 per cent this year, a stirring record as the country has been bogged down in the frustrating quagmire of deflation in recent years.

With their splashy growth records, few would believe that steel mills would have be used as a scapegoat for alarm. They constitute a real danger.

But it is not the sole reason for tightened policies.

More production, more pollution. That has been the norm for many small private mills basking in the no-holds-barred sunlight of the past.

They boast lower costs and higher efficiency. According to statistics from the Tangshan government, local private mills can save up to 150 yuan (US$18) per ton in melting iron and steel over their State counterparts.

This seems to abide by the optimal law of market economics - competition drives down corporate costs and improves efficiency.

But that is only one side of the coin.

While riding the tide of the industrial boom, many private enterprises, restricted by their inefficient equipment, consume more energy and other resources than traditional State firms, further pinching the already resource-thirsty country.

Every ton of steel is produced at the sacrifice of 6 tons of water and 1.6 tons of ore. The industrial water for melting steel in Hebei is pumped from underground. Excessive use of water for steel has propelled experts to say that the province may run out of ground water in the future.

With all those externalities, the central government has cancelled the approval of new steel programmes.

Simply banning new projects will not serve as a good cure.

A set of strict and specific environmental standards for industrial works are needed.

After that, the government needs to revamp its official promotion system to encourage local governments and officials to focus more on the environment than sleek GDP numbers.

(China Daily)

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