Mon, Jun 21, 2004 - Page 10 News List

China's belt-tightening praised

COOLING-OFF PERIOD Beijing's moves to rein in its overheated economy have won applause from local business leaders, but they warned of risks to Taiwanese companies

By Amber Chung  /  STAFF REPORTER

Despite the ripple effect on Taiwanese businesses, local academics and industry leaders have applauded China's belt-tightening measures announced earlier this year.

They pointed out, however, the risks facing China and warned Taiwanese companies to watch out for the impact of a potential increase in interest rates in the near future, driven by China's soaring consumer price index (CPI).

"I greatly applaud China's preventive steps to rein in its runway economy before an economic bubble materializes," said Chen Lee-in (陳麗瑛), a research fellow on the Chinese economy at the Chung Hua Institution for Economic Research (中經院), at a symposium on Beijing's clampdown policy last week.

The step to suspend the establishment of new development zones could help farmers to keep lands for farming and thus have more stable economies, Chen said.

This is widely expected to moderate the rural problems that have been a headache to Beijing for decades, she added.

Tsai Horng-ming (蔡宏明), deputy general-secretary of the Chinese National Federation of Industries (工業總會), said that China-based Taiwanese companies could see better profits and lower costs, as the clampdown policy could help restrain raw material prices that have skyrocketed due to China's startlingly huge demands for materials like steel, cement and coal.

The measures are expected to cause industrial restructuring by eliminating ill and outmoded businesses, which are beneficial to competitive Taiwanese companies in the long run, he said.

In late April Chinese Premier Wen Jiabao (溫家寶) said the country was committed to cooling its overheating economy by tightening bank and investment in cement, steel and aluminum projects.

China should carefully segment and identify overproducing industries when implementing belt-tightening measures, Chen said.

For example, parts of the aluminum industry still enjoy a gross margin as high as 9 percent, which indicates no overproduction and thus should not be added to the curb list, she added.

Echoing Chen, Tsai said that as unemployment could amount to 228 million people, Beijing should keep a fine balance in undertaking such artificial controls of the economy.

"If China's annual growth rate falls below 8 percent or 9 percent, then unemployment and bad loans problems could deteriorate and cause social instability," he added.

An increasingly likely rise in interest rates in China could more bad news for China-based Taiwanese companies, experts said.

Zhou Xiaochuan (周小川), governor of the People's Bank of China (中國人民銀行), China's central bank, said last week that they would consider raising interest rate if the CPI growth rate surpass 5 percent.

China's CPI growth rate last month reached 4.4 percent from a year ago, according to the figures released by National Bureau of Statistics of China earlier this month.

"Taiwanese companies should watch out for their receivables from their Chinese counterparts if the interest rate increases," Tsai warned.

Considering the administrative curbs and worsening power shortages in China -- which may last for the next year or two -- Taiwanese companies could put off their plans to set up plants in China in the near future, said Luo Huai-jia (羅懷家), executive director of the Taiwan Electrical and Electronic Manufacturers' Association (電電公會).

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