Steel industry needs reform rather than stimulus – Arthur Kroeber

Arthur Kroeber
by Fons1 via FlickrChina’s heavy industry needs rather readjustment to the current overcapacity in stead of a stimulus package, China analyst Arthur Kroeber tells The Australian in an critical view on how China is dealing with the current economic downturn.
Arthur Kroeber:

“The message is clear: China’s heavy industry sector is plagued by over-capacity and will need to readjust to a significantly weaker demand pattern than was anticipated a year ago.”

In less than a decade the steel output grew from 100 million tonnes to 570 tonnes and now fell back to a more sustainable 400 tonnes. Kroeber expects a soft landing but by now means an easy or short landing.

He says that hidden debt in China’s corporate sector is higher than revealed by official bank-loan data, since 44 per cent of corporate capital expenditure in 2008 was financed by money whose source is literally unknowable.
Industrialisation, urbanisation and thus growth will continue, he stresses, but subject to gradually increasing constraints — some demographic (due to the rapid ageing of the population) and environmental, others the results of deliberate government policy.
Of concern to Australia, Kroeber predicts that the resource intensity of China’s growth will be far lower in the next five years than it was in the last five as a result of industrial consolidation, slower growth, and efficiency improvements.

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Arthur Kroeber is a speaker at the China Speakers Bureau. When you want to share his insights on how China is going to deal with its economic downturn, do get in touch.