Paulson, Wu Cool China Growth; Local Leaders Add Fuel

central planning.......looks like some local leaders don´t care (or Beijing isn´t still serious)......it will be fascinating to see how this plays out.

so viel zur zentralen planung aus peking......einige provinzfürsten scheinen sich nicht sonderlich zu kümmern zw peking macht noch immer nicht ernst.....bin gespannt wie sich das letztendlich entwickelt.

The Washington talks between U.S. Treasury Secretary Henry Paulson and Chinese Vice Premier Wu Yi on curbing China's runaway growth and smoothing trade frictions will have to take Huang Yong into account.

Huang, the top economic-policy official in Zhejiang province, boasts of the prosperity that textile and shoe manufacturing have brought to his area. And that's just the beginning, he said in an interview at a tea house in Hangzhou, the capital -- no matter what the officials who are meeting in Washington this week might think. The next step is developing industries like petrochemicals, pharmaceuticals and steel.

Such aspirations, typical for Huang's counterparts throughout China, frustrate Beijing's efforts to slow expansion in industries such as steel that are plagued with overcapacity. Too much investment in unneeded factories may lead to lower profits for Chinese companies, national financial instability and increased tensions with the U.S.

``As long as producers have the support of local governments, who are most worried about employment and growth in their own backyards, they will find ways to put the central government off,'' said Jonathan Anderson, chief Asia economist for UBS AG in Hong Kong. .....

Trade Surplus
The trade surplus is forecast to top $200 billion this year, a record, and its benchmark stock index is up more than 87 percent since December. To curb lending that fuels excessive growth, China last week ordered banks to set aside more money as reserves, the fifth such mandate this year, and raised interest rates for a second time.....

thanks to Mish http://globaleconomicanalysis.blogspot.com/

Reducing Exports
As Wu was on her way to Washington, China's Finance Ministry announced an export tax of as much as 15 percent on steel slabs and 10 percent on steel wire and rods to reduce exports of ``energy consuming, polluting and resource-intensive products.''

Tom Danjczek, president of the Washington-based Steel Manufacturers Association, said he doesn't expect the tax to do much to curb overproduction. ``Will the tax possibly close any of the inefficient 60 to 80 million tons of subsidized capacity?'' he said. ``Probably not.''

Since 2003 the Chinese government has been trying to reduce overcapacity in industries including steel, aluminum, cement and autos, creating a list of ``no go'' sectors where investment would be restricted.

The plan hasn't worked. ``It's difficult to think of a single sector where the moratorium on investment approvals was actually effective,'' UBS analysts said in a report last August.

Fixed-asset investment in real estate and factories rose 25.5 percent in the first four months of 2007 compared with the same period a year earlier. That's up from a 24.5 percent increase for all of 2006. ....

Over the past three years, Chinese authorities have tightened lending and closed smaller, inefficient steel mills, efforts they predict will eliminate 35 million metric tons of capacity this year.

In reality, China will not only replace that amount, but add another 70 million metric tons in 2007, bringing total steelmaking capacity to 591 million metric tons, according to a forecast by CBI Research & Consulting in Shanghai.

By comparison, total U.S. capacity this year will be about 115 million metric tons, according to the Steel Manufacturers Association in Washington, which represents 45 mainly North American steel manufacturers.

Now, China's modern mills turn out more than the U.S., Japan and Russia combined. Steel production in China more than tripled over the past six years to an estimated 470 million metric tons this year, CBI said.

Unused Capacity
``China has more unused capacity than we have capacity,'' Danjczek said.
More is being added. Baosteel Group Corp., China's biggest steelmaker, and Handan Iron & Steel Group plan to build a 19 billion yuan ($2.5 billion) plant in the northern city of Handan to boost production.

``China's steel industry has no concept of profits and costs and is only interested in creating jobs,'' said Daniel Dimicco, chairman of Charlotte, North Carolina-based Nucor Corp., the second-largest U.S. steelmaker. ``In many product categories it has destroyed pricing.''
The aluminum industry looks much the same. Investment in smelting more than doubled this year, and last month China's economic-planning agency reiterated plans to halt construction on new plants that breach rules designed to curb overcapacity.

`The Main Risk'
``China for us is the main risk to aluminum prices,'' said Michael Lewis, global head of commodities at Deutsche Bank AG in London.

Local communities try to attract heavy industry with tax breaks, subsidized loans, land deals, and energy and infrastructure assistance, often in so-called industrial enterprise zones.

>just like in the western world....genau wie im westen....

...While Beijing wants to evaluate local officials on how they factor energy use and the environment into investment decisions, he said, ``it's very hard to do that because you can't measure the quality of economic growth.''

`Severely Punished'
According to China Daily, the government-controlled English-language newspaper, 14 provinces have continued to offer preferential electricity prices to high-energy-consuming industries even with Beijing directives to stop. Local officials who expand investments ``blindly'' will be ``severely punished,'' the government warned in January.

China's statistics bureau yesterday said that the economy risks going ``from a stage of relatively rapid growth to overheating.'' ....