China's central bank warned of risks in three over-heated sectors, iron and steel, cement and electrolytic aluminum in its first quarterly report this year.

The report by People's Bank of China (PBOC) said investment inChina's iron and steel industry surged 96.6 percent in 2003; cement 121.9 percent and electrolytic aluminum 92.9 percent. Investment in the three sectors continued to rise fast in the first quarter, with investment in iron and steel industry up 107.2percent, cement 101.4 percent and electrolytic aluminum 39.3 percent.

It's foreseeable that after all the new projects went into production, market supply of these products would greatly exceed demand, creating big waste as well as increasing financial risks, said the report on the implementation of the monetary policy in the first quarter.

A survey by the bank reveals that by the end of February, bank loans made up 42 percent of investments in the three industrial sectors; debt to asset ratios of the three sectors were all above 45 percent.

The report says by the end of 2003, China has been the world's biggest steel producer for the seventh consecutive year. China's iron and steel production capacity is expected to greatly exceed market demand by the end of 2005.

It predicted that China's cement production would exceed 1 billion tons by 2005; electrolytic aluminum production capacity would far exceed 9 million tons by the end of 2005, far above the expected demand of 6 million tons by that time.

In view of the risks, the central bank issued a circular in mid-January asking commercial banks to strictly controlling issuing loans to overheated sectors including iron and steel, electrolyticaluminum and cement.

Source: Xinhua