International Law

?Curbs on Overcapacity?: What Year is This?

By Stan

I don’t know about you, but I think that this new government initiative could have been instituted anytime during the past five years (if not longer):

China’s Cabinet said yesterday it will try to curb overcapacity and excessive investment in industries including steel and cement - a possible side effect of its massive stimulus plan.

Regulators also will “enhance management” of areas including flat glass, chemicals, wind power and polysilicon production, according to a decision announced after a meeting of the State Council led by Premier Wen Jiabao.

“Overcapacity and redundant projects remain prominent because of slow progress in industrial restructuring in some of these sectors,” a State Council statement said.

Measures to rein in overcapacity would include strict controls on market access, reinforced environmental supervision and tougher controls over land use, the statement said.

Banks were ordered to lend money for the targeted sectors only in strict accordance with industrial policies. (Shanghai Daily)

OK, I understand that this is a bigger problem now than it was before the stimulus package, but I get the feeling that the specifics for this oversight plan were drafted years ago, ignored during the boom years, and recently dusted off because someone finally became alarmed at inefficient spending.

In other words, not a new problem. This is cyclical: 1) banks are directed to get loans out there to spur growth; 2) poor lending practices create inefficiencies, including NPLs (bad loans) and overcapacity (steel and cement have been this way for many years); and finally 3) the government claims that it has figured it all out and will change lending practices so that only “legitimate” projects shall be funded.

Been there, done that (several times), but good luck anyway. They certainly need to keep trying until they get it right.

© Stan for China Hearsay, 2009. | Permalink | No comment | Add to del.icio.us
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Full post as published by China Hearsay on August 27, 2009 (boomark / email).