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Investment soars despite warning
Updated: 2004-04-11 15:30

Investment in three industries, steel, electrolytic aluminum and cement, soared rapidly early this year despite repeated warnings on over-investment from the government.

The investment in steel hiked by 172.6 percent in the first two months of this year, according to the State Development and Reform Commission (SDRC).

Some 78.6 billion yuan (US$9.5 billion) is expected to be invested in all the cement factories under construction now, a year-on-year rise of 133 percent, the SDRC source said.

Great dangers are underlying the investment boom though the domestic demand is dynamic now, the SDRC said, adding that many projects being built in the three industries are "low-level copy- cat construction" with poor efficiency, which consume more energy and cause severe pollution.

China would be able to produce 330 million tons of steel annually in 2005, if all the steel factories under construction now were finished, but the domestic demand will not reach 330 million tons till 2010, the SDRC said.

The cement and electrolytic aluminum industries face a similar problem. Aluminum factories with a production capacity of 3.1 million tons are under construction and will raise the country's annual supply of electrolytic aluminum to 10 million tons in 2005 while domestic demand only accounts for half.

The booming investment has led to a price increase in raw material for the three industries. The price of alumina, the raw material for electrolytic aluminum, has risen by about 80 percent since the end of 2002.

The demand for steel, electrolytic aluminum and cement is expected to grow quickly at this stage when the country is modernizing and urbanizing, said Professor Zhou Tianyong, from the Party School of the Communist Party of China (CPC) Central Committee.

Analysts in Beijing noted that local governments were another major reason for fast investment growth of the three industries.

The total investment by the central government rose by 12.1 percent in the first two months while that of local governments was up 64.9 percent, 24.7 percentage points higher than the growth of the same period last year.

Some local governments still focus too much on economic growth and believe in investment growth as a method to push the local economy, the SDRC said.

Driven by high profits, the investment growth will not slow down without powerful government intervention, insiders said.

The central government has sent 10 inspection teams to 20 provinces, autonomous regions and municipalities to seek solutions for the investment growth.

However, some experts suggest the government be cautious about its policies.

The government should differentiate the real demand from investment bubbles and take up different solutions, said Liu Shucheng, from the Economic Institute of the Chinese Academy of Social Sciences.

Some industries might be overheated due to a real shortage in the market and the others, for example, steel, are pushed by speculation, Liu added.

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