China to Boost Private Investment and Domestic Spending in Face of Saturated Steel and Cement Markets

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Researched by Industrial Info Resources (Sugar Land, Texas)--Despite an oversupply in industries including steel and cement, the Chinese government has decided to promote private investment and consumer spending in the second year of its stimulus program.

China's manufacturing sector recorded growth for the ninth consecutive month. The latest survey results from the China Federation of Logistics and Purchasing indicate a purchasing managers' index (PMI) of 55.2. While the PMI for the month of November did not vary from the previous month, activity in the manufacturing sector continued in full swing. Export and Import sub-indices also recorded a growth trend, signaling an onset of stability in the Chinese economy.

Industrial production for 2009 is expected to show growth of about 10.5%, compared to 9.4 % at the beginning of the year, with year-on-year production figures for November-December likely to increase 16%. Output at shop-floor levels reached a 19-month peak of 16.1 % in October this year.

China's GDP showed growth of 8.9% through the third quarter, compared to 7.9% during the second quarter of this year. According to the GDP growth outlook forecasts from the Organisation for Economic Co-operation and Development (OECD) (Paris, France), China's GDP will continue to grow to about 10.2% in 2010, with a slight dip to about 9.3% growth expected in 2011. OECD also expects the government to end up with almost negligible debts when the stimulus plan ends in 2011.

Backed by a $585 billion government stimulus package, which is currently halfway through distribution, the Chinese economy is likely to grow at about 9.5% during the last quarter of this year. The stimulus package, primarily aimed at expanding and sustaining domestic demand and employment, has paved the way for economic recovery. China plans to attract further private investments into state-run utilities. The inflow of funds is likely to ease cash availability to small and medium firms that form the backbone of the country's employment, accounting for 75% of the domestic jobs.

While China continues to register growth across most sectors, with a PMI of above 50, which is representative of a positive trend, a few sectors such as oil processing, beverages, and paper making and printing have been trailing behind. The outlook for the construction sector seems encouraging, with the sector registering year-on-year growth of 44% as of September. Investments in fixed assets and retail sales were up 33.1% and 16.2%, respectively.

The Chinese government has delayed or shelved about 47 projects worth $28 billion since September 2009, citing overproduction and environmental impact. About 70% of the impacted projects are related to nonferrous metals, steel, power and petrochemical segments. While the government plans to continue with the financial stimulus, it is also looking to refine funding policies for sectors with excess capacity.

However, with surplus steel and cement inventories on board and sufficient spare capacities to meet the requirements of several countries across the globe, experts are anxious to see how the Chinese economy will fare as other countries emerge from the recession. In the event of external demand not increasing sufficiently, China may revise its growth targets for subsequent years.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.