Chinese Premier Wen Jiabao’s curbs on cement and steel production show the government is confident the economy is now strong enough to tackle industrial overcapacity created by record lending this year.
“The fact that policy makers decided to make the adjustment now signals they deem investment strength and growth momentum outside of these areas already strong enough to withstand this move,” said Helen Qiao, an economist at Goldman Sachs Group Inc. in Hong Kong.
China’s State Council yesterday called on authorities to “resolutely” curb overcapacity as the economy is still in a “critical period.” The restraints on steel and cement output, as well as parts of the coal, glass and power industries, come as Chinese economic growth rebounded to 7.9 percent in the second quarter and Japan, France and Germany exited recession.
“It’s a timely move,” said Tomo Kinoshita, an economist at Nomura Holdings Inc. in Hong Kong. “They are already suffering from an overcapacity but if they don’t stop now, the problem is going to worsen.”