Learn Chinese - Efforts stepped up to curb growth

WORLD / Wall Street Journal Exclusive

Efforts stepped up to curb growth
By SHAI OSTER (WSJ)
Updated: 2006-08-18 12:05

http://online.wsj.com/public/article/SB115582157779038279-cNfqsjzcEVGjqnIYO
dX4wn83u1E_20060824.html?mod=regionallinks

BEIJING -- China, in what the government said was an unprecedented move,
has punished three provincial officials for ignoring the central
government's call to slow down investment.

The action highlights the difficulty Beijing faces in trying to control
the growth of its runaway economy. The authority of the central
government is being limited by provincial and regional officials who
approve projects to stimulate economic growth, which has traditionally
been a key measure of officials' performance. Beijing has been trying to
put the brakes on the economy because of fears that overheated investment
could lead to inflation and a pileup of bad loans.

The governor of Inner Mongolia and his two lieutenants were told to write
self-criticisms to China's powerful State Council for allowing hundreds
of millions of dollars of investments in coal-burning power plants that
hadn't been authorized by the central government. It wasn't clear whether
the officials will face further punishment. Such a highly public
dressing-down is unusual in China, and it appears the government is
trying to send a message that it is serious about its economic policy.

A surge in construction of coal-burning plants in Inner Mongolia, in
northern China just south of Mongolia, is blamed for high pollution
levels that often leave the air in the region dark with soot. But the
plants have helped contribute to soaring growth rates in the region that
reached 21.6% last year, far surpassing even China's torrid growth
nationally of 11.3% in the most recent quarter.

The case has also drawn particular attention because six workers were
killed when part of a plant collapsed in July 2005 as builders raced to
finish the project, despite orders from Beijing to stop construction.

China's central government has taken a slew of measures this year to slow
the economy. It raised bank interest rates once, and twice increased bank
reserve requirements -- the amount of money commercial banks must deposit
with the central bank and which then isn't available to be lent out.
Authorities also increased taxes on profits from property sales and
raised the minimum deposit for home purchases to try to cool overheated
real-estate prices.

So far, those policies are having limited effect. Economic growth has
accelerated to its fastest pace in more than a decade, with gross
domestic product in the second quarter expanding 11.3% from the same
period in 2005, faster than the 10.3% growth recorded in the first three
months of this year.

On Wednesday, in a special meeting of China's cabinet led by Premier Wen
Jiabao, Inner Mongolia leader Yang Jing and his subordinates Yue Fuhong
and Zhao Shuanglian were strongly reprimanded, according to
state-run-media reports. Others involved in last year's fatal accident
have been demoted and two face criminal charges, the reports said.

"Anyone who disobeys orders will be held accountable," said a statement
from the meeting, according to China Daily.

Since severe power shortages hit large parts of China's coastal
industrial and commercial base two years ago, construction of coal-fired
power plants has surged. Many projects have permission from the central
government, but there has also been a building boom in illegal power
plants that avoided Beijing's scrutiny on efficiency, safety and
environmental standards.

By the end of 2004, unauthorized power plants with a potential capacity
of 122 gigawatts were either finished or under construction, according to
China's National Development and Reform Commission. That is more
electricity than is used by the entire U.K. and is roughly one-fifth of
China's total installed power capacity. Analysts say even more
unauthorized construction has begun since then.

An investigation by China's cabinet found that Inner Mongolia's
government had illegally approved the building of 8.6 gigawatts-worth of
power stations. The coal-rich province attracted energy-intensive
industries such as chemicals. Inner Mongolia's economy boomed. In 2002,
the economy expanded 12.1%. Last year, it grew 21.6%.

The growth has come at a high cost. Already plagued by sandstorms that
also cover Beijing, Inner Mongolia has experienced worsening air
pollution and acid rain. Water, already scarce in the arid region
bordering the Gobi desert, is now in even shorter supply, said Han
Xiaoping, an analyst with Beijing Falcon Pioneer Energy Co.

The deaths occurred last year when one of the buildings for a generator
at the $366 million Xinfeng Power Plant collapsed after orders to speed
up construction.

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