Amid a sprawling hive of belching mills along the Yangtze river, 250,000 tonnes of equipment - once a fully integrated steelworks operated by ThyssenKrupp Stahl in Dortmund - is being reassembled after being dismantled in Germany and shipped to China.

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Nearby, a stainless steel mill jointly owned with South Korea (news - web sites)'s Posco, the world's second-biggest steel producer, is undergoing a $700m extension.

"Do you realise that in a few years this complex alone will be making as much steel as the whole of France?" asks Michel Bourge, a French technical director employed by Shagang, China's largest private steel company and the force behind this hell-bent industrial expansion.

Shagang's rush to expand production is fuelled by China's demand for steel, which has been rising at more than 20 per cent since 2000.

However, the expansion is unlikely to have pleased top officials from the Beijing ministry overseeing the steel industry when they visited the site in Zhangjiagang, Jiangsu province, last month.

The State Development and Planning Commission is preparing a blueprint to rein in what Beijing regards as overinvestment in steel and other industrial products.

Having doubled steel output in the four years from 1998, from about 100m tonnes to more than 200m, the SDPC estimates that another 50m tonnes in capacity will come online by 2005.

Shagang alone will increase production from about 5m tonnes to about 16m by 2006. In comparison, crude steel production in France - home to Arcelor, the world's largest steelmaker - was 15.2m tonnes in 2002 , according to the International Iron and Steel Institute.

Chinese steel output will soon surpass that of Japan and the US combined. After ploughing Rmb70bn ($8.5bn) into new capacity in 2002, fixed asset investment has risen to Rmb50bn in the first six months of 2003 alone, and is tipped to exceed Rmb100bn by year's end, the SDPC says.

The industry's growth is rippling around the globe, prompting BHP Billiton and Rio Tinto in Australia, and CVRD in Brazil, the world's three largest iron ore miners, to ramp up production and increase prices. The growth in seaborne iron ore trade has been one of the main drivers of the spike in freight rates for bulk cargo ships, which in some cases have risen fourfold in a year.

The SDPC blames local officials for encouraging steel investment without regard for the national economy. "Some local governments don't understand macroeconomic conditions - it's not unusual for local governments to approve new steel plants against the national regulations," the commission said in a recent report.

At the mill complex at Zhangjiagang, Shagang's confident executives scoff at talk of overinvestment.

"The problem is, these officials don't understand the industry - they are still using a planned economy model to oversee us," said a Shagang spokesman. "Shagang is a profitable company, we produce high quality products and what's more, we have never used a single cent from the government in our expansion. There is no reason for the government to restrict us."

More to the point, the central government no longer appears powerful enough to restrict well-connected, private companies such as Shagang, which have considerable autonomy over their investment plans.

Shagang's biggest single shareholder, Shen Wenrong, is one of China's wealthiest entrepreneurs, with a fortune estimated by Asia- money at $155m. Another of China's emerging steel barons, Li Zhaohui, of Haixin Iron & Steel in Shanxi, is reportedly investing Rmb15bn to build a new plant in Guangxi province, with a capacity of 5m tonnes - again in defiance of central dictates.

Mr Li, 26, took over the company last year after its founder, his father, Li Haicang, was shot dead in a business dispute.

Steel companies are backed enthusiasticly by state-owned banks. Once shy of lending to private companies, the cash-laden banks now seek out entrepreneurs to diversify their assets away from government enterprises.

"Pronouncements from the planning commission will not make any difference to the likes of Shagang and Haixin," says a Shanghai-based foreign executive. "Basically, it's between them, their market and their bankers - and their bankers love them."

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