Mr. Naotaka Sonoda, general manager of corporate research department of Sumitomo Mitsui Banking Corporation, Japanese major bank, said most risk is inflation and over earnest investment for China, according to interview by japan Metal Bulletin.
Mr. Sonoda explained Chinese economy is strong, and China has the space to grow enough with firm fundamentals, fixed asset investment pull up Chinese economy when China is in capital formation period. Mr. Sonoda explained the government announced rate and reserve deposit rate reduction on September 2008, economic stimulus policy at 4 trillion yuan on November 2008 and domestic demand stimulation for appliance in agricultural community in the beginning of 2009 and increased investment in 2009 when the demand from abroad decreased due to Lehman’s fall, and achieved economic recovery rapidly, and domestic demand stimulus reduced appliance makers’ inventory and pulled up willingness to produce and jacked up Industrial Production Index. Mr. Sonoda said GDP per head was over US$ 10,000 in Beijing and Shanghai in 2006, while is below US$ 2,000 in Gansu and Guizhou Provinces. Mr. Sonoda forecasts these provinces which have tens of millions of peoples increases GDP per head to over US$ 5,000 within 5 years. Mr. Sonoda explained the investment us exerting traction on economy in China, economic locomotive isn’t so much appliance or automobile by steel products for building material such as rebar, Chinese crude steel output is closing to 2 million tonnes per day.. Mr. Sonoda explained there are 3 elements for investment, the first is land, the second is fund and the third is incentive. Mr. Sonoda said the government wants to expand local economy, and local executives want to increase GDP for their actual achievement. Mr. Sonoda expects shifting of industry and income advance to inland area, but fixed asset investment continues in inland area when it is hard to international trade in inland area and it requires time to increase consumption in inland area. Mr. Sonoda said inflation is at the top of the government’ list when excess liquidity is increasing by monetary easing measures of Europe and the U.S. and these measures fuel Chinese bubble. Mr. Sonoda forecasts Chinese automobile output increases to 19 million sets from 18.3 million sets in 2011 from 2011, the sales of commercial car is decreasing due to crunch, but Chinese market has potential for the sales of automobile at 20 million sets per year after 5-6 years. Mr. Sonoda expects Chinese crude steel output continues to increase when the output defines the demand and the government takes up the output by generation of the demand. Mr. Sonoda said the government is advancing construction of houses for low-income earners. Mr. Sonoda forecasts it is doubt that the output continues to increase by 50 million-60 million tonnes each year, but continues to upward trend for a while. Mr. Sonoda pointed out the share of superior steel makes is too low for steel output. Mr. Sonoda explained production adjustment and restructuring of steel industry isn’t expected to advance when small-middle size steel makers are increasing the output such as mainly rebar if the government provides guidance to major government operation steel makers, steel makers may stop expansion of production capacity if the market become to require other steel products from rebar. Mr. Sonoda said China would take a balance by consumption from investment, and would require high-added steel products, high tensile steel or special steel in near future.