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Chinese central bank warns of 3 “overheating” industries
The Epoch Times

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The People’s Bank of China recently published the first quarter monetary policy report with warnings about three industries experiencing over investment: steel, cement and aluminum.

According to a Xinhua News Agency report, in 2003 investments in China’s steel, cement and aluminum industries were up 96.6, 121.9 and 92.9 percent respectively, when compared to 2002. In the first quarter of this year, the increases were 107.2, 101.4 and 39.3 percent respectively, over the same period in 2003. With the completion of these projects, estimates predict capacity will exceed the market demand substantially.

An investigation by the People's Bank, up to the end of February, revealed 42 percent of funding for investment projects of the three industries comes from bank loans, another 30 percent comes from banks in other forms and 12 percent comes from fund raising by enterprises indirectly related to banks. The debt to capital ratio exceeds 45 percent for all three industries.

China has been the world’s leading steel manufacturer for the past seven years. Yet, its steel production in 2003 was still smaller than its consumption. Industry analysts predict China's steel production capacity will exceed domestic demand by the end of 2005, adding to global productive overcapacity.

The debt to capital ratio for the steel industry is 46 percent with 38 percent of the investment money originating from banks. The debt to capital ratio for the cement industry is 51 percent with 39 percent of the money for investment projects coming from banks.

Besides leading in steel production, China is also the largest electrolytic aluminum production country. Analysts predict productive capacity for electrolytic aluminum will exceed nine million tons until the end of 2005, substantially greater than the estimated demand level of six million tons.

In the first quarter, aiming at the over investment problem in certain industries and areas, the People's Bank of China strengthened its measures to warn commercial banks of investment risks. In January, the Bank requested commercial banks limit their loans to the steel, cement and electrolytic aluminum industries. More recently, it raised commercial banks’ capital reserves requirements in an effort to tighten credit across the country.

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