After nearly a year of repeated warnings of overheating in the steel sector, the government finally retorted to administrative and financial solutions to stop soaring investments in production.

The State Development and Reform Commission, the country's most powerful cabinet department in charge of economic development, said it will generally stop approval of new construction projects by steel company groups and steel and iron mills.

An official from the commission's industrial development department told China Daily that his commission is cooperating with the banking sector to tighten credit requirements for steel projects.

The official, who declined to be named, said the banks will no longer provide loans for those projects that do not meet industrial policy or market accession requirements.

In 2002, China's fixed asset investment in the steel industry stood at 70.4 billion yuan (US$8.5 billion), surging 45.9 percent over the previous year. In 2003, the figure rose to 133.2 billion yuan (US$16.0 billion), up 89.2 percent from 2002. It is estimated that by the end of 2005, China's annual steel output will reach 330 million tons, enough to meet the market demand of 2010.

"It's urgent that we apply the brakes," said the official.

The government will no longer give tax rebates to imports of equipment for the construction of unapproved steel projects. The central government will urge local governments to abolish price discounts on electricity consumption for steel makers.

Officials are planning to raise the threshold for entering the steel sector by readjusting technology, energy consumption, safety and quality requirements.

The official said similar measures will be adopted in the aluminum and cement sectors, which saw year-on-year growth of 92.6 percent and 120 percent, respectively, in 2003.

The commission's minister, Ma Kai, said the strict measures are aimed at avoiding environmental, financial and social problems caused by blind investment and excess capacity in the steel industry.

At the same time, the commission is working with related entities to tighten inspections and approvals of land use for steel plants.

Meanwhile, investment in steel and other sectors has aroused heated debate among those attending the ongoing sessions of the National People's Congress (NPC) and Chinese People's Political Consultative Congress (CPPCC), China's top legislature and top political consultative body.

They cautioned that blind surges of investment in the sectors could lead to environmental and economic problems.

Li Mingmin, general manager of Shandong-based Laiwu Steel Co., told China Daily that excessive investment in steel and iron production was partly caused by record-high steel prices powered by strong demand from steel-consuming industries.

"They (investors) all elbowed in for money," said Li, who is a deputy at the 10th NPC.

"Unfortunately, much of the new investment features low technology, serious pollution and abuse of natural resources," Li said.

Tang Yueming, president of Sichuan-based Shuangma Cement Co., said the situation is similar in the cement sector.

Tang, also an NPC deputy, said, "Many have planned to establish cement plants in Chengdu, the capital city and the economic hub of the province, on the forecast of greater demand in the coming years."

(China Daily March 12, 2004)