Tuesday, July 31, 2007

Rising Chinese steel production - is the end in sight at long last?

The following as reported in China Daily:

30 firms banned from bank loans for pollution violations

Updated: 2007-07-30 14:45

China's environmental regulator said Monday it has put 30 companies on the first blacklist of pollution violators that are to be barred from receiving bank loans under a policy aimed at enforcing often-ignored regulations.

The government announced this month that the State Environmental Protection Agency, the central bank and bank regulators would cooperate to bar access to credit to companies that violated pollution standards.

The list posted Monday on SEPA's Web agency includes food processors, producers of paper and alcoholic beverages and steel makers. The agency did not say whether the companies would be allowed to appeal.

The central government has been tightening enforcement of environmental and energy efficiency regulations. China's economic boom has left major rivers and lakes badly polluted and its cities are among the world's smoggiest.

This has been in the cards for some time but is the first evidence I am aware of that the new policy is being enforced. It is significant for the following reasons. A key cause, if not the primary cause, of the recent surge in China's trade surplus with the US is continued rapid growth in steel output. There are various explanations for this (small producers attempting to ramp up production ahead of the reductions in export tax credits, or attempting to bulk up because otherwise they know they will be consolidated with larger firms) but the important point is that China wants to slow the growth of or even reduce capacity in heavy industry like steel and whether or not they could accomplish this will determine whether the trade surplus stabilizes, how quickly China can shift away from industry to consumption, how much progress China can make in reducing the growth in energy consumption, and - of course - what kind of progress can we expect to see in terms of improved environmental protection. Cutting heavy polluters off from state funds is a key step in the right direction on all these fronts. As usual, Beijing keeps pushing buttons until they get what they want.

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