Real Governmental Actions

In the reformation process of changing plan economy into market
economy, what we often emphasize at first is how to reduce
governmental actions in the economic operation. That is
typically correct unless the economy development exceeds
reasonable range and the common financial methods can not
control the situation. Now it is the time. The central bank has
consecutively taken a series measures to attempt to slow down
the economic growth, both the GDP growth rate and investment in
fixed asset has been, however, increasing in the first half. The
accumulative investment in fixed asset in the first half
increased 29.8% compared with the same period of 2005. In other
words, the fast economic growth is mainly pulled by investment.
Today China's President Hu Jintao announces an order that
overheated investment must be stopped anywhere in the country.
He requires all the local governors to execute the order actually.
We can feel that controlling overheated investment is even more
important than loosing RMB/USD exchanging rate for the
government.
   Who is investing? What projects are being invested? An
official working in a governmental statistics department
discloses that the newly inaugurated projects in the first six
months are contributed by medium and small scale projects. It
remarks that provincial governments are promoting the
investment so that the officials look like having got vigorous
success. The investment in digging sectors including coal, crude
oil and natural gas remains high growing speed, so does in food
and textile industries.
   What a strange thing! The money flows into the textile that
is suffering loss and bankruptcy! Perhaps it can be explained
by the upgrading action for the industry. I think that there is
lack of new production segment to be invested.
   Reference to the topic in the previous issue, textile
manufacturers in China claimed difficulty in operation.
Chemical fiber is the segment in chemical industry, which is most
connected with textile industry. I found that the prices of raw
materials used to make chemical fibers, such as p-xylene and PTA,
increased by over 15% than one month ago. Chinese existing
textile manufacturers will face greater pressure, therefore
comes chemical fibers firms.
   One year ago, electrolysis aluminum segment that faced heavy
loss for every existing producer has been prohibited to
construct new projects, which reduced a total capacity expansion
of 2.47 million t/a. Now most of the projects that stopped
construction in 2005 recovered again. It is estimated that the
total capacity being constructed reached 5 million t/a. In fact
the industry does not need technology other than power. Those
who export aluminum are selling energy actually.
  
Zhong Weike
(August 4, 2006)