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Storage growth concerns government
By Fu Jing (Business Weekly)
Updated: 2004-07-29 14:38

The central government is expressing concerns over the rapid growth of product storage in the metallurgy, machinery, auto and light-industry sectors.

National Development and Reform Commission (NDRC) officials recently said storage in those sectors achieved a minimum 50-per-cent, year-on-year increase.

However, the NDRC stopped short of suggesting the sectors are overheated.

The comments, however, marked the first time the central government has expressed concern about the issue since it decided several months ago to cool down investment in three sectors -- steel, electrolytic aluminium and cement.

"We must attach enough importance to the rapid increase in storage, which may lead to financial difficulty for enterprises," Zhu Hongren, deputy director of NDRC's Economic Operation Bureau, said.

Some enterprises in China's coastal areas are feeling the effects of insufficient funding, he said.

In the metallurgy industry, storage increased 65.9 per cent by the end of June, compared with February. Now, the total storage is worth 78.7 billion yuan (US$8.5 billion).

Official statistics indicated storage in the metallurgy, machinery and light-industry sectors accounted for 62 per cent of the total storage in China's secondary industry.

Zhu said he was concerned about China's excessive car production capacity, as the year-on-year storage rate had soared 89 per cent by the end June.

"Auto producers ... should be watchful," said Zhu.

Statistics indicated 118,000 vehicles were waiting to be sold, among which 105,000 were cars.

"In the auto industry, market-oriented measures should play a vital role in cooling down the sector, because it is fully competitive in China," Zhu said.

Ma Liqiang, general director of the NDRC's Economic Operation Bureau, said the tremendous investment driving China's economy will ensure supply shortages will continue in the coal, electricity, oil and transportation sectors.

"Cooling down the industries that require much electricity must be the most urgent task," Ma said.

Earlier this month, the price for electricity, for industrial purposes, rose an average 2.2 fen (0.26 US cent) per kilowatt-hour (KWH).

The price in China currently averages about half a yuan, or 6 US cents, per unit. Industries that are heavy users of electricity will face a 2 fen (0.24 US cent) increase per unit.

Industries listed as phase-out technologies will have to pay an additional 5 fen (0.60 US cent) per unit.

China will face more severe power shortages this year compared with 2003, Ma said.

NDRC officials plan to hold hearings before deciding whether to raise residential electricity rates.

The electricity price adjustment for industrial users was announced by the NDRC at the start of this year with a proposed average rate of 0.7 fen (0.08 US cent) per kilowatt/hour. But it has been carried out until earlier this month because of the central government's concern about a possible heavier inflationary pressures.

Despite the government's repeated warnings, since last summer, about too much investment, money continued to pour into some sectors.

Fixed-asset investments in China increased 28.6 per cent, year-on-year, during the second quarter.

Ma indicated that more administrative measures will be taken to cool down investment in three industries -- steel, electrolytic aluminium and cement.

Investments in the sectors soared rapidly earlier this year.

Rapid growth in demand for coal, electricity, oil and transportation is expected in the third quarter, Ma added.

The NDRC official ruled out the possibility demand will decline by year's end.

"What we are doing now is trying to be a good co-ordinator, and trying our best to meet the demands of organizations and enterprises," Ma said.

Railways can only meet 35 per cent of transportation demand, even though all locomotives have been put into use, he added.

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