BEIJING- The Leaders of China's economic macro-control, which was originally aimed to solve shortages of coal, power, oil and transportation, are now shifting focus onto oversupply.
The latest executive meeting of the State Council, chaired by Premier Wen Jiabao, underscored the importance of the structural adjustment of industries that have an oversupply problem.
"The structural adjustment of industries that have an oversupply problem is a vital and arduous task for macro-control," the meeting acknowledged.
The excessive investment in some industries such as iron and steel, cement and non-ferrous metal has caused a serious oversupply problem cahracterized with a price slump, stockpile increase, profit drop and deficit rise, the meeting participants said.
New projects in these industries are still emerging one after another in some places, which is exacerbating the oversupply problem, participants said.
"China's production capacity is increasing due to years of sustained high growth in investment," said Wang Jian, secretary general of the Society of Macroeconomy of China.
Since 2002, the growth in investment in fixed assets has surpassed 20 percent for three consecutive years. Most of the invested projects are to finish construction by 2007, so China's production and supply capacity will reach a peak by then without any interventions, Wang said.
In the middle of this year, the prices of steel, cement and aluminium began to decline due to a change in supply-demand relations, with steel prices falling by around 1,000 yuan (around 125 US dollars) per ton.
The production of coal and electric power, which used to be short of supply in China in 2003 and 2004, has also shown signs of overproduction this year.
The profits of enterprises, especially those engaged in the energy and raw material sectors, were squeezed due to increased production and tough competition on the one hand, and falling prices on the other.
The oversupply problem has caused rampant corporate losses and a risk of deflation. In the first three quarters of this year, the economic losses of large-scale industrial enterprises rose 57.6 percent from the same period of 2004.
Meanwhile, China's CPI (consumer price index), grew only 2 percent in the January-September period this year, down 2.1 percent year on year.
The newly-increased production capacity has to be strictly controlled, and the market access threshold will be lifted up with stricter technological, environmental, safety and quality standards formulated, said the State Council executive meeting.
Enterprises wasting resources, polluting the environment and with unqualified safe production conditions have to be closed, the meeting said.
The just-concluded central conference on economic work, which was held by the Communist Party of China (CPC) Central Committee and the State Council, also stressed the solution of the oversupply problem.
Substantial efforts will also be made to readjust relations between investment and consumption, expand the channels of consumption and improve the consumer environment, the conference said.