China’s Blown Up Growth

Business, China, Company Strategy, Economics

ChinasteeldemandAug2012.jpg

By John Richardson

CHINA’S steel production is expected to decline for the first time in 31 years during 2012. Yes, 31 years.

“The end of three decades of growth in a key industry will add to hand-wringing over China’s economy,” wrote Chuin-We Yap in this Wall Street Journal blog post.

“China makes half the world’s steel – a third of which goes into the bellwether construction sector – and the rest into everything from cars to home appliances and the national grid,” he said.

But he added that falling output might be a blessing in disguise in that it would “mould the bloated industry into line with the government’s wishes.

“Beijing has tried for years to cull overproduction, which it blames for the country’s inability to control iron ore prices, ditch dirty old mills, and focus on high value added products.”

Then again, though, as we discussed earlier, steel demand might gain a H2 boost from local authorities being given free reign to spend huge sums of money on infrastructure, even if it means blowing-up more nine-year-old sports stadiums.

Demand for chemicals and polymers that go into the construction would also, of course, benefit.

There is nothing new in this, as this 2010 post from Zero Hedge indicates.

“As one of the most architectural productive countries, China aggregates 2 billion m2 of new building area every year, consuming about 40 percent of the world’s concrete and steel,” said the post.

“However, on the flip side of the new building fever, there lies the rubble and remains of other ‘older’ buildings. People tear down four-star hotels to build five-star ones and bulldoze newly developed construction sites before they are even finished.”

For example, see below a picture of the five-year-old Yuxi Exhibition Center, in Yongchuan City, Chongqing Municipality being blown up in 2005. 

 

ChinaBlownupBuilding.jpgIf many more buildings get blown-up as a new construction boom grips China, what will this say about efforts to create more sustainable growth?

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