Silver lining seen on Chinese cloud

China's plans to cool its fast-growing economy could help Taiwan's construction industry and real-estate sector by reducing the price of raw materials, an industry veteran said yesterday.

"China's schemes to rein in the sizzling economy are expected to help limit the prices of raw materials that have been skyrocketing since last year, causing costs in Taiwan's construction industry to increase 20 percent," Lai Cheng-i (賴正鎰), chairman of the Taiwan Construction Development Federation (台灣省建築開發公會), said yesterday.

Chinese Premier Wen Jiabao (溫家寶) said last week that China would adopt "effective and very forceful measures" to calm the nation's runaway economy. The government has restricted bank lending and halted new investment in cement, steel and aluminum businesses.

China's soaring demand for raw materials to develop infrastructure for the 2008 Olympic Games and the 2010 World Exposition had caused the prices of materials such as steel and cement to rise sharply.

Between June last year and February this year, the prices of raw materials including iron sand and scrap steel rose by between 39 percent and 82 percent in Taiwan, according to the Industrial Development Bureau. Major steel products such as steel panels and steel bars had a markup of between 7 percent and 47 percent over the same period, the bureau said.

China's plans are expected to result in the prices of steel bars, for example, to fall in the next two months to NT$15,000 per tonne from the current NT$18,000, Lai said.

The fall in the prices of raw materials will help reduce the price of real estate, Lai added.

Victor Chang (張欣民), director of the research and development division at Sinyi Real Estate Inc (信義房屋), agreed, saying that investors and construction companies would halt investments in China and pour their money into Taiwan's real-estate sector instead.

China's move could also delay an expected rise in Taiwanese interest rates, should the US Federal Reserve Board decide to restrict lending in the near future.

Fed Chairman Alan Greenspan told the US Senate late last month that deflation no longer appears to be a threat, citing restored pricing power. Greenspan's comments prompted market watchers to speculate that the US central bank may raise rates as soon as June.

"An environment with loose capital and low interest rates is helpful to bolster the prosperity of the real-estate sector," Chang said.

Chang, however, warned that the impact on Taiwan's stock market brought by China's declaration was a downside.

The TAIEX plunged 284 points, or 4.44 percent, to close at 6,117.81 on Friday, with a strong sell-off from foreign investors following Wen's remarks.

"The impact on the local bourse could lead to shrinking capital, which is definitely harmful to the property sector," Chang said.

Whether the damage will exceed the benefits is not yet clear and depends on how fierce the measures are and how long they last, he said.