Industrial output rises 16pc, planners warn of overcapacity

Updated at 1.02pm:
China's industrial output grew at a robust annual rate of 16.1 per cent in October, the government reported on Tuesday, but economic planners warned that major industries such as steel and vehicles were producing too much to keep up with demand.

China's industrial output in October was 632 billion yuan (HK$608 billion), the National Bureau of Statistics said, with the annual rate of growth slowing to 16.1 per cent from 16.5 per cent in September.

While some Chinese officials said both export demand and domestic demand were supporting strong growth in output, members of the country's top planning agency are starting to warn of overcapacity.

Excess capacity in the steel industry was likely to exceed 100 million tonnes this year, with the situation forecast to grow worse in coming years, the China Business News quoted Jia Yinsong, an official with the National Development Reform Commission, as saying at a recent business conference.

Demand for steel was expected to be about 300 million tonnes this year and to rise only marginally in years to come, to about 320 million tonnes by 2010, the report said.

Meanwhile, steel output capacity was estimated to have reached 410 million tonnes by the end of last year. By next year, it is expected to reach 490 million tonnes and by 2008, to rise to 530 million tonnes, the report said.

Earlier, state media cited another commission official as saying that China's vehicle production capacity could be twice the country's actual demand by the end of 2010.

"The industry is facing a grave overproduction situation," the official Xinhua News Agency quoted Chen Bin, deputy director of the commission's industrial department, as saying.

China's annual vehicle output capacity was already at eight million complete units, with a further 2.2 million units of annual capacity under construction and soon due to be completed, the report said.

Vehicle sales are expected to reach about 5.5 million units this year and nine million by 2010.

Without government action to curb investment, China's auto factories could be turning out up to 20 million vehicles a year by 2010, Chen said.

China's vehicle output reached five million units last year, putting it close to overtaking Germany as the world's third-biggest vehicle producer, behind the United States and Japan.

Other industries grappling with overcapacity include cement, aluminium, household appliances and electronics. The government has sought to curb investment in redundant plants.

The statistics bureau reported that vehicle output surged 13.2 per cent in October over a year earlier, with production of rolled steel up 23.6 per cent and output of crude steel up 19 per cent.

Meanwhile, output of crude coal rose 10.8 per cent and electricity generation rose 9.4 per cent.

The government has been encouraging more investment in those key industries to help bridge energy shortages, although it has also warned that within two years China will also be producing more electricity than it needs.