With no export markets to feed like before, China faces tough economic options. On the one hand to shut down factories and prevent new startups to reduce overcapacity and on the other massive unemployment.
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BEIJING, Oct 19 (Reuters) - China vowed on Monday to make it harder to invest in sectors suffering overcapacity and to shut off financing to industrial projects that do not meet the government's criteria.
A statement issued by 10 ministries, led by the National Development and Reform Commission, took particular aim at steel, cement, flat glass, coal chemicals, polysilicon and wind power equipment. (Reporting by Zhou Xin and Alan Wheatley; Editing by Ken Wills)
China's Overcapacity Worries
OCTOBER 7, 2009
By ANDREW PEAPLE. WSJ
China's leadership has been celebrating 60 years of the People's Republic. But there are signs it's not quite convinced of the economic course it has engineered.
Just before the Oct. 1 festivities, China's State Council slipped out plans to slash overcapacity in several key industries, including aluminum, steel and cement, as well as wind power.
The announcement was little noticed, but it points to the central dilemma facing China's economic planners: while monetary and fiscal stimulus have combined to support the country's growth levels around the 8% annual target this year, they've also helped deepen excesses.
Beijing is clearly aware of the problem, warning the excess capacity issue would lead to declining profits and, in turn, company closures and unemployment.
The signs are already there: Chinese industrial company profits were down 10.6% on year to the end of August, with state-owned industrial companies -- major beneficiaries of the stimulus efforts to date -- seeing profits off 25.2%.
The evidence underscores the discrepancy between caution at home and overseas optimism about China's future expansion and its ability to support the global economy. It also shows the challenge Beijing faces in keeping growth steady next year and beyond.
Chinese Premier Wen Jiabao recently warned the pick-up in growth this year "remains unstable, unconsolidated, and imbalanced."
If those supporting factors don't come quickly, there'll be pressure to supplement the fiscal stimulus, especially with the Chinese government -- on the surface at least -- enjoying relatively low debt levels.
Squaring that with the overcapacity issue will then become a knottier challenge.
-----------
BEIJING, Oct 19 (Reuters) - China vowed on Monday to make it harder to invest in sectors suffering overcapacity and to shut off financing to industrial projects that do not meet the government's criteria.
A statement issued by 10 ministries, led by the National Development and Reform Commission, took particular aim at steel, cement, flat glass, coal chemicals, polysilicon and wind power equipment. (Reporting by Zhou Xin and Alan Wheatley; Editing by Ken Wills)
China's Overcapacity Worries
OCTOBER 7, 2009
By ANDREW PEAPLE. WSJ
China's leadership has been celebrating 60 years of the People's Republic. But there are signs it's not quite convinced of the economic course it has engineered.
Just before the Oct. 1 festivities, China's State Council slipped out plans to slash overcapacity in several key industries, including aluminum, steel and cement, as well as wind power.
The announcement was little noticed, but it points to the central dilemma facing China's economic planners: while monetary and fiscal stimulus have combined to support the country's growth levels around the 8% annual target this year, they've also helped deepen excesses.
Beijing is clearly aware of the problem, warning the excess capacity issue would lead to declining profits and, in turn, company closures and unemployment.
The signs are already there: Chinese industrial company profits were down 10.6% on year to the end of August, with state-owned industrial companies -- major beneficiaries of the stimulus efforts to date -- seeing profits off 25.2%.
The evidence underscores the discrepancy between caution at home and overseas optimism about China's future expansion and its ability to support the global economy. It also shows the challenge Beijing faces in keeping growth steady next year and beyond.
Chinese Premier Wen Jiabao recently warned the pick-up in growth this year "remains unstable, unconsolidated, and imbalanced."
If those supporting factors don't come quickly, there'll be pressure to supplement the fiscal stimulus, especially with the Chinese government -- on the surface at least -- enjoying relatively low debt levels.
Squaring that with the overcapacity issue will then become a knottier challenge.
