China's top planning body on Friday warned local governments to stop offering tax and power incentives to energy-intensive industries in a sharply worded statement aimed at curbing investment in the metals, energy and cement industries.
The National Development and Reform Commission told local authorities to strictly control new investment in aluminium, copper, steel, coke, coal, power generation, cement and other industries by scrapping tax breaks and cut-price power. The circular ordered governments to "strictly control" new investment and to stop approving new projects that don't meet national policy.
Beijing's policies have barely made a dent in double-digit growth in these sectors over the last few years, in part because local governments eager for investment have offered cheap land, discounted power prices and easy loans from local bank branches. "In the first four months, fixed investment in these industries has been very high. Steel was a little better, but aluminium and alumina in particular have been growing, which will feed through to higher output later this year," said analyst Heng Kun at Essence Securities in Beijing.
The result is choking pollution that fouls China's air and endangers its water supply. China is forecast to soon overtake the United States as the world's top emitter of greenhouse gases, and planners are worried that global warming could bring more floods and droughts to the world's most populous nation.
Economists also worry that overcapacity in heavy industry destroys profit margins and increases the risk of bad loans, while creating relatively little employment.
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