After four years of steady growth, China's steel industry has seen capital investment finally slow down this year.

Industry commentators are divided over the significance of the cooling-off period with some hailing it as an "important signal" and others insisting it is only temporary.

"The reverse reflects the central government's efforts to cool down the overheated steel sector, which began in 2004 and are finally beginning to pay off," said Xu Lejiang, general manager of Baosteel, China's largest steel conglomerate based in Shanghai.

According to the National Bureau of Statistics, fixed-assets investment in the steel sector began to slow down in June, with a growth of only 2.3 percent. By October, investment was actually 1.2 percent down on the same period of the previous year.

"Another important development is the slowdown in consumption growth even though the national economy has maintained its forward drive," said Wu Xichun, former head of the Steel Industry Association of China.

The statistical bureau reports that in the first three quarters, consumption of crude steel rose only 10.5 percent nationwide, against a 17.2-percent growth a year earlier.

"The cool-down in both capital investment and consumption implies that a policy of halting overproduction and balancing supply and demand has begun to take shape," Xu Lejiang observed.

Other industry observers do not share Xu's optimism. Experts speaking at a symposium staged by consulting firm My Steel highlighted the steel sector's susceptibility to macro-economic change.

They argued that if the amount of fixed asset investment was raised by local governments, investment in local steel companies would follow.

They pointed to the actions of some small steel plants who flaunted industrial policy and resumed production only months after being ordered to suspend operations at the beginning of the year. It is believed local governments have not enforced the regulations regarding their closure.

The consultants also said that oversupply had been masked by a sharp rise in steel exports, resulting in distorted statistics.

Higher prices on overseas markets have helped China become a net exporter of rolled steel earlier than expected.

The statistical bureau said between January and October, China exported 32.8 million tons of rolled steel, up 91 percent on the previous year. The exports were 17.3 million tons more than imports for the 10-month period, compared with a net import of 4.77 million tons a year ago.

Any price drop on the overseas markets would leave China's steel industry vulnerable to overproduction as exports are reined in.

Wu Wenzhang, an industry analyst in Shanghai, said steel exports were conducive to realizing a balance between demand and supply at home.

But Baosteel's Xu Lejiang countered that it was more important to raise the threshold of the industry, concentrate production and make structural reforms.

Source: Xinhua