Global Economic News

China Has To Curb Vital Industrial Expansion

Aug. 26 (EIRNS)—China, which produces almost half the world's steel, has to take measures to curb "overcapacity" in key industries including steel, iron, cement, aluminum, and plate glass production, the State Council announced today. Prime Minister Wen Jiabao had warned the nation that, despite its $585 billion-equivalent stimulus program, China is in a "critical period" economically—in contrast to the insane declarations of recovery made just days earlier by the IMF and by U.S. Federal Reserve chairman Ben Bernanke. "There are still a lot of unstable and uncertain factors ahead, and the economic situation is still very grave," Wen said in Hangzhou, central China. Despite positive signs, the recovery is "unstable" and "unbalanced," China Daily quoted him. The export sector especially faces great uncertainty, he said, and the "country's economic development still lacks inner vitality to counter the crisis."

"The decline in external demand may continue for a longer time," creating overcapacity in some sectors, and this would be a big obstacle to a rebound in industrial growth, Wen said. The State Council website quoted him saying that there should be no "blind optimism" about the economy. "It is difficult to significantly expand domestic demand in a short period."

The real problem is not "overcapacity," but world under-consumption. China makes more steel than Japan, the U.S., Russia, and India combined, according to the World Steel Association. China also produces half the world's cement—1.45 million tons last year, eight times more than India, the second-biggest producer. If China has to stop expanding capacity, this will mean an even bigger gap between what the world produces and what it needs to rebuild after decades of deindustrialization.

On Aug. 13, Li Yizhong, Minister of Industry and Information Technology, gave a press conference in Beijing to announce a three-year moratorium on approvals for new steel and iron projects. Li Yizhong said that "overcapacity" in the steel industry was "the most evident" of all the industrial sectors. This year, estimated total output capacity is 660 million tons, but demand is only 470 million tons. Expansion has to stop for the coming three years, he said, although projects already underway, which will create another 58 million tons production capacity, will go ahead.

"If the trend goes down like this, the steel industry will come to a dead end," he concluded.

The moratorium was announced despite the fact that China is already carrying out a big project to consolidate current capacity in order to eliminate outdated steel mills. Over the next few years, steel mills in Hebei Province will cut capacity from 120 million to 80 million tons each year.

Steel production has increased in recent months due to government investment, but exports are falling. China produced 50.7 million tons of steel in July, up 12.7% from a year ago, but steel exports were down 74% to 1.81 million tons. So far in 2009, steel exports are down 67% to just over 11 million tons.

Other vital industries are also going to be curbed, including cement and coal chemicals. Aluminum capacity is far too large for the crisis-strapped world economy: Aluminum Corp of China today said that the industry has about 600,000 tons of inventories, due to surplus output.

Danish Government Announces Big Budget Deficit for Next Year

Aug. 25 (EIRNS)—Danish Finance Minister Claus Hjort Frederiksen today disclosed just how big the government expects next year's budget deficit to be. Whereas the 2008 budget was based on a 60-billion-kroner surplus (the equivalent of $11.5 billion, or 3.4% of GNP), the Finance Ministry has proposed a 2010 budget based on a 86 billion kroner (DKK) deficit ($16.5 billion, or 4.9% of GNP)—a negative DKK150 billion ($28 billion) about-face in one-and-a-half years. And, add to that the debt created by the approximately DKK100 billion in bank bailout packages not included in these figures.

The government expects the ranks of the unemployed to rise to 150,000 people, out of a total population of 5 million.

While the government speaks about increasing infrastructure investments next year, the parliamentary opposition rightly criticizes this as "too little, too late." One member of the economic "wise men's" council, Hans Jörgen Whitta-Jacobsen, has called for an additional DKK10 billion in public infrastructure investment, pointing out that the increase in the proposed infrastructure budget is due to an already agreed-upon plan to push forward municipal infrastructure projects, cancelled due to the government's ideologically based halt to municipal spending over the last couple of years.

The biggest long-term infrastructure plans have been proposed by the Schiller Institute in Denmark, well known for its 2007 election slogan, "After the Crash—Maglev Across the Kattegat."