China: the Illusion of conservationPublished by MAC on 2008-01-26
China: the Illusion of conservation
26th January 2008
As reported on MAC last week, China's massive trade surplus with the rest of the world - most notably the US - is also having deleterious impacts at a community level in India.
Equally important, the country has been exporting cheap, shoddy and sometimes potentially deadly goods (such as lead-ridden children's toys which sparked a minor scandal in the US last month); as well as contributing significantly to global pollution and greenhouse gas emissions by producing these consumer items.
The regime's leadership has been acutely aware of this imbalance for some years, but shown little capacity to correct it, although the administration now reports that imports finally seemed to be outpacing exports during the last three months of 2007.
Indeed, refined copper exports dipped by nearly 50% last year, while imports of the raw material increased by a quarter and of refined copper by just over 80%. Notable is the massive rise of copper ore concentrate, shipped in from Kazakhstan and, to a lesser extent, from Peru; and copper anode imports from DR Congo (perplexingly still called "Zaire" by China's General Administration of Customs)
Steel output is also said to be "de-accelerating on an annual basis" - though this doesn't mean what it seems. In fact, steel production during 2007 stood at a record 489 million tonnes.
According to the Financial Times, the regime has "struggled...to rein in the potentially more serious internal imbalances created by the huge incentives to invest in resource-intensive and polluting heavy industries, such as steel and aluminium. " The result, it is claimed, is that exports of steel and aluminium began to stall in the second half of last year.
Nonetheless, despite a raft of central government edicts aimed at restricting investment in the industrial metals sector, "local authorities continue to attract such industries with cheap land, subsidised power and minimal environmental controls."
One company, Baosteel,claims, with the cooperation of Credit Suisse, to have eliminated some steel making capacity "[i]n line with central government environmental protection and energy conservation requirements." But this reduction was of only 1.5 million tonnes; meanwhile Baosteel increased its full production last year by just over 20%.
The overall conclusion must be that, while some success is being registered in limiting its trade surplus, the government is actually doing little or nothing to reduce domestic demand for key industrial metals, or the environmental and social costs of refining them.
On the contrary, similar costs borne by communities hosting the raw materials overseas, have increased.
[Comment by Nostromo Research, 26 January 2008]
Trade finally finds a balance
By Richard McGregor in Beijing
25th January 2008
When Hu Jintao and Wen Jiabao gained power five years ago, they promised to chart a new economic course for China, rebalancing a "growth-at-all-costs" mentality with social spending and environmental rigour.
The report card on their first term's performance, however, would seem to fly in the face of such promises, with the economy recording five consecutive years of double-digit-plus growth.
The economy expanded by 11.4 per cent last year, the fastest pace in 13 years and a figure all the more remarkable because China's output now matches that of Germany, the world's third largest economy.
Consensus forecasts for this year put growth at 9 to 10.5 per cent, an expansion that will deepen the already huge influence China is having on the global economy.
Xie Fuzhan, who heads the National Bureau of Statistics, hailed the five-year growth spurt as "really extraordinary", both for its size and its relative consistency from year to year.
"When we look back 10 years from now, we'll see that we've really had some hard-won and precious achievements," he said.
As well as extolling the payoff for the population from high-speed growth, the government is taking heart from other trends that emerged in the final months of last year.
Most important is the conviction of the authorities that exports are finally beginning to moderate, with import growth outpacing the rise in sales overseas of Chinese goods for the last three months of the year.
Following a tenfold increase in the trade surplus between 2003 and 2007, a period when the government's mantra was the need for "balanced" trade, the new trend will be welcomed by Beijing, especially in a US presidential election year.
The government has struggled equally to rein in the potentially more serious internal imbalances, created by the huge incentives to invest in resource-intensive and polluting heavy industries, such as steel and aluminium.
Despite central government edicts aimed at restricting investment in the sector, local authorities continue to attract such industries with cheap land, subsidised power and minimal environmental controls.
Exports of steel and aluminium began to stall in the second half of last year after the government began taxing them at the customs gate, one part of the economic system where Beijing's control is not in doubt.
The government, which is flush with revenue, has also begun to spend substantially - on education, rural health and income support for urban residents.
Such spending measures should, in theory, reduce the high level of precautionary savings and lift consumption, a key policy aim of the past five years. "We hope to rely more on domestic demand, especially consumption demand, as a driver of growth," said Mr Xie.
Xu Xiaonian, an economics columnist and business school lecturer, takes a gloomier view, saying that China's growth model still has fundamental defects and is dangerously unsustainable, both environmentally and financially.
"The biggest problem is that the government dominates the allocation of resources, and not the market," he said. "The central and local governments still pursue the maximum speed and scale of growth, rather than maximising profits."
Mr Xu said the inflation surge partly resulted from the huge rise in bank lending in recent years, something the government has tried to restrict more forcefully in the past six months. "We have seen the result of excess liquidity in the US. We should learn from it."
Andy Rothman, of CLSA, the brokerage, says the policies to recalibrate the economy had really only been introduced last year and would take some time to have an impact. "It is a big change so it will be a while before there is a shift."
From a global perspective, the rebalancing of China's economy is more crucial than ever, as US demand begins to fall.
The success of Mr Hu and Mr Wen, who start their second five-year term in March, in getting Chinese to spend more, and invest and export relatively less, will be a huge determinant in the extent of any global downturn following a US recession.Copyright The Financial Times Limited 2008
China drives global steel production growth in 2007
China continued to be the driving force behind global crude steel production in 2007, producing a record 489 million tons over the year, up 15.7 percent from 2006, the International Iron and Steel Institute (IISI) announced Wednesday.
However, although China saw the highest growth in crude steel production in the world last year, the country's crude steel production is decelerating on an annual basis, with growth reaching 26.1 percent in 2004, 26.8 percent in 2005, 18.8 percent in 2006 and 15.7 percent in 2007, according to the IISI.
A similar slowdown in steel production growth was also seen in other major crude steel producing countries and regions, including the EU, CIS countries and the United States in 2007, while the opposite was the case in the Middle East, where production growth accelerated in the second half of the year.
Global crude steel output reached a record 1.34 billion tons in 2007, up 7.5 percent from 2006, marking the sixth consecutive year that global crude steel production has grown by over 7 percent.
[Interfax China Mining and Metals, 25 January 2008]
Baosteel Group goes green with CO2 emission reduction project
Baoshan Iron and Steel Group (Baosteel Group), China's largest steel maker, recently inked a carbon dioxide emission reduction agreement with the UK-based Arreon Carbon and Swiss-based Credit Suisse Group, Baosteel Group announced Thursday.
According to the agreement, Arreon Carbon and Credit Suisse will jointly invest over EUR 60 million ($87.73 million) in Baosteel Group over the next five years, with the aim to reducing carbon dioxide emissions by 6 million tons from the company's Power Generator IV, a UN-accredited CDM (Clean Development Mechanism) device.
In line with central government environmental protection and energy conservation requirements, Baosteel Group recently eliminated 1.5 million tons of outdated steel smelting capacity at its special steel production base, Baosteel Special Steel Branch, the company announced Wednesday.
Baosteel Group sold 28 million tons of steel products last year, up 20.6 percent from the previous year, and generated pre-tax profits of RMB 33.92 billion ($4.69 billion), surging 50 percent year-on-year, according to latest figures released by the China Iron and Steel Association.
[Interfax China Mining and Metals, 25 January 2008]
China releases 2007 statistics for copper imports and exports
China imported a total of 1.49 million tons of refined copper in 2007, soaring 80.6 percent from the previous year, while imports in December alone lifted 16.5 percent year-on-year to 111,685 tons, according to statistics released by the General Administration of Customs Tuesday.
Copper ore and copper concentrate imports increased 25 percent year-on-year to 4.52 million tons in 2007, mainly due to increased purchases from Peru, the United States and Kazakhstan.
However, refined copper exports plummeted 48.1 percent on an annual basis to 125,914 tons last year.
The below tables show China's copper and copper concentrate imports and exports by country in December and for the whole of 2007.
China's copper and copper concentrate imports in December and whole of 2007
Imports in December 2007
Imports in 2007
Copper ore and concentrate
Source: General Administration of Customs
China's copper and copper concentrate exports in December and whole of 2007
Country or city
Exports in December 2007
Exports in 2007
Source: General Administration of Customs