Price drop indicates economy cooling down
By Fu Jing (China Daily)
Updated: 2004-05-11 22:48

Soaring prices of steel products, widely used in China's fast-growing economy, have seen a drop for six consecutive weeks since March, but they are still 30 per cent higher than a year ago.

Still, the reduction was seen by the government as a major achievement of its desperate efforts in the last year to slow down the country's overheated economy.

The National Development and Reform Commission Tuesday said the price of steel products dropped about 17 per cent or roughly 750 yuan (US$91) to around 3,440 yuan (US$419) per ton during the past six weeks. The findings were the result of close watch on steel prices at 22 major fairs nationwide.

"The drop was mainly caused by the government's effort to tighten overheating trends in some sectors," a commission official told China Daily in a phone interview.

The official, who refused to be named, said the price will continue to fall in the short term thanks to increased macro-economic regulations, tightened money supply and administrative intervention.

A stronger US dollar and price drops of raw materials for steel products on domestic and overseas markets are also partly responsible for the decrease, the official said.

According to the information gathered from major steel markets in 22 cities, prices rose by at least 1,000 yuan (US$121) per ton in the 12 months leading up to March.

Xinhua reported that the country's demand for steel products began to fall in the first quarter but output increased by 29.47 per cent, leading to growth in inventories.

By early March, the price of steel products for construction rose at least 50 per cent and rising steel prices have spurred investment in steel plants and prices of raw materials and energy during January and February.

Overall investment in the steel sector stood at 16.9 billion yuan (US$2 billion) in those two months, up 202 per cent year-on-year, according to figures released by the commission.

The prices of iron ore, steel scrap and coke jumped by about 200 per cent, 50 per cent and 40 per cent year-on-year, respectively.

Despite the price drop for steel products, some economists said the overheating trend of China's economy has not changed.

Money is still injected into already overheated sectors like iron and steel, aluminum, cement, real estate and automobile.

China's economy grew by 9.7 per cent in the first quarter of the year, higher than the official target of 7 per cent for 2004.

To curb the trend, the State Council has said it is determined to punish officials who involved in the overheated sectors.

Recently, the State Council decided to send a special group to investigate the construction of an iron project in the cities of Changzhou and Yangzhong.

The project, with an expected production capacity of 8.4 million tons and total investment of 10.6 billion yuan (US$1.27 billion), was initiated by Jiangsu Tieben Iron Co Ltd in 2002. It began construction in June 2003.

An investigation to date showed that the project illegally occupies 436 hectares and began construction without approval from the local environmental protection department.

Wang Jiang, vice-president of the China Institute of Macroeconomic Research said the government can play an important role in macroeconomic management.

"But I don't mean that the government should tighten up the economy in full scale," said Wang. "We need a relatively fast development to create jobs, which many, many Chinese are seeking."