In the July 7, 2010 edition of the Sydney Morning Herald, John Garnaut's article, "Beijing Shuts Smelters to Meet Energy Targets" heralded the initiation of a media campaign drawing domestic and international attention to drastic action and sacrifices that China is claiming to meet Hu Jintao's pre Copenhagen commitment to reduce China's energy intensity.
The ensuing flow of media reports focussed on reduction of output and closures of energy intensive industries including power generation, steel mills and coal processing in Hebei and Beijing. The closures and reductions are said to be designed to reduce overall CO2 emissions from industry and power generation. But the whole program can be seen to be a massive subterfuge to disguise problems in the Chinese economy.
The campaign is the brainchild of low profile Li Changchun, the head of China's vast propaganda and media censorship network that includes numerous ministries and departments. The Central Propaganda Department is not a ministry or part of China government, but part of the Chinese Communist Party (CCP). Li Changchun is one of the most influential men in China, yet holds no ministerial post and is not seen as part of China's government policymaking.
2009 and 2010 have not been good years for the CCP's planed future growth for China.
Confidence in China's continuing long-term demand for resources is slowing. China's property, stock market and debt bubbles are creating concern and several prominent IPOs were deferred or drastically reduced. The rate of foreign direct investment is declining as increasing numbers of articles question the future of China as the country of easy gains. China's banks came under scrutiny as the property market slowed and the prospect of massive hidden local government debt raised the spectre of a new flood of nonperforming loans.
One recent survey estimated that there are 64.5M empty apartments in China. The survey was based on building power consumption. This raises the following questions. Which banks are holding the mortgages? Who is paying the interest? What happens as property values decline?
Following its successful bid to raise US$22B by its initial public offering, the Agricultural Bank of China immediately suspended new lending. Another major state bank followed suit and froze lending to the property sector. These two events also raised speculation as to the real level of non-performing loans at the two banks.
Then in August, China's own regulator found risks following the China Bank Property Stress Test.
These were not the only problems.
Since early 2009, there has been rising concern of overcapacity in many of China's major industries, including steel, aluminium, cement, coke, chemicals and even the auto industry. Concern was even being aired publicly by many prominent bureaucrats, raising the ire of the CCP.
From mid 2009 and throughout 2010, China's economy and heavy industry has been driven by Beijing's massive stimulus package intended for the world's biggest infrastructure programme.
The diversion of bank lending into the stock and property markets as well as local government special purpose investment funds diluted the overall effect of direct spending on the massive infrastructure objective.
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