A senior Chinese minister warned recently that the world’s fastest growing economy is in danger of overheating as expansion outstrips power supplies, threatens production quality and raises the risk of oversupply.
In the first six months of the year China sprinted forward at a blistering pace of 8,2%, but then concerns about the risks were tempered by the outbreak of severe acute respitory syndrome (Sars), which was seen as a coolant for such high octane growth.
With Sars now under control, policymakers have started to speak out about the rise in the economic temperature, pushed up by the explosive growth of small, low-quality and poorly regulated steel, cement and car firms.
”If it is not cooled, the investment fever in some industries will heavily affect China’s robust economic growth,” said National Development Minister Ma Kai in a China Daily interview.
China’s belated but passionate embrace of capitalism has produced enviable statistics, and because of its cheap labour it has become the workshop of the world.
In the first half of the year investment in the steel industry more than doubled. In June car production surged 82% year on year, bank loans rose by 26% and fixed capital expenditure by 31%.
But the authorities are concerned that much of the new money is being thrown at inefficient firms and redundant capacity. This is worryingly reminiscent of the ”great leap forward”, when even remote villages established steel mills, raising national production, although quality was often poor.
Kai pointed out that many new steel and car firms use old equipment that worsens pollution and wastes energy. The power industry is stretched to the limit, as recent blackouts have proved.
Financial authorities have also warned of a real estate bubble as investment in new housing outstrips demand. One result of this has been deflation, now at about 0,2%.
Investment in excess buildings and factories is being fuelled by a sharp growth in the money supply, with cash in circulation 20% up in June. Last year lending for property rose by more than 50%. The government has frozen land leases and warned local authorities to be cautious in infrastructure projects. — Â