China's Propaganda Spin on Emission Reductions

International concern grew over bubbles in stock and property markets fuelling concern over bank, local government, corporate and private debt.

Beijing's goal of China becoming the world number one steel producer drove the restructuring of China's diverse steel industry into four or five highly efficient hi-tech mega steel mills centred in northern China.

Like much of China's mega planning it was oversimplified and lacked detailed strategic long term planning in favour of political objectives. It overlooked the fact that this restructuring strategy translates into less labour required to produce one tonne of steel or steel product. Despite the major lift in capacity, the new mega mills could not effectively employ the numbers of workers that would be made redundant.

The mergers  are forcing the closure of mills in several provinces creating friction between provinces and provinces and the central government. The threatened closures have the potential to create unemployment, as well as loss  of taxation revenues and government services revenues from local power generation and coal mining as well as the decline of local transport.

Steel is China's major iconic industry and employer and runs in parallel with coal.

In 2008, following several years of adverse international media coverage of safety issues, fires and mining deaths, Beijing ordered the closure of thousands of small inefficient, polluting and dangerous coalmines in Shanxi and the development of the vast high quality open cut mines in Inner Mongolia.

Inner Mongolia is now the major supplier of coal for power generation, coke production, coal-based chemicals, and the steel industry in northern Hebei province and Beijing.

China faces a 2011 in which the economies of its two major export markets are running flat and the global economy is well below the recovery line resulting in a decline in China's trade balance and rising imports.

China's stimulus spending has been the major driver of the steel industry, demand for iron ore and rising ore and steel prices, but that terminates in the first quarter of 2011 and demand for steel and iron ore will fall.

China's steel industry raised capacity in 2009 by 58M tons to 660M tons, and succeeded in achieving overcapacity of 200M tons. As demand declines with the termination of the stimulus package, that over capacity rate will rise and is the cause for increasing concern within the CCP.

China's quirky metal ore trading market however added speculation to mill demand and the surge in iron ore buying by a steel industry focussed on production rather than market forces and profitability.

Ore prices are in decline and steel mills are reducing inventories, buying from ore stockpiles at China's ports, and cutting orders for local and imported ores.