Efforts stepped up to curb growth
By SHAI OSTER (WSJ)
Updated: 2006-08-18 12:05

http://online.wsj.com/public/article/SB115582157779038279-cNfqsjzcEVGjqnIYOdX4wn83u1E_20060824.html?mod=regionallinks

BEIJING -- China, in what the government said was an unprecedented move, has punished three provincial officials for ignoring the central government's call to slow down investment.

The action highlights the difficulty Beijing faces in trying to control the growth of its runaway economy. The authority of the central government is being limited by provincial and regional officials who approve projects to stimulate economic growth, which has traditionally been a key measure of officials' performance. Beijing has been trying to put the brakes on the economy because of fears that overheated investment could lead to inflation and a pileup of bad loans.

The governor of Inner Mongolia and his two lieutenants were told to write self-criticisms to China's powerful State Council for allowing hundreds of millions of dollars of investments in coal-burning power plants that hadn't been authorized by the central government. It wasn't clear whether the officials will face further punishment. Such a highly public dressing-down is unusual in China, and it appears the government is trying to send a message that it is serious about its economic policy.

A surge in construction of coal-burning plants in Inner Mongolia, in northern China just south of Mongolia, is blamed for high pollution levels that often leave the air in the region dark with soot. But the plants have helped contribute to soaring growth rates in the region that reached 21.6% last year, far surpassing even China's torrid growth nationally of 11.3% in the most recent quarter.

The case has also drawn particular attention because six workers were killed when part of a plant collapsed in July 2005 as builders raced to finish the project, despite orders from Beijing to stop construction.

China's central government has taken a slew of measures this year to slow the economy. It raised bank interest rates once, and twice increased bank reserve requirements -- the amount of money commercial banks must deposit with the central bank and which then isn't available to be lent out. Authorities also increased taxes on profits from property sales and raised the minimum deposit for home purchases to try to cool overheated real-estate prices.

So far, those policies are having limited effect. Economic growth has accelerated to its fastest pace in more than a decade, with gross domestic product in the second quarter expanding 11.3% from the same period in 2005, faster than the 10.3% growth recorded in the first three months of this year.

On Wednesday, in a special meeting of China's cabinet led by Premier Wen Jiabao, Inner Mongolia leader Yang Jing and his subordinates Yue Fuhong and Zhao Shuanglian were strongly reprimanded, according to state-run-media reports. Others involved in last year's fatal accident have been demoted and two face criminal charges, the reports said.

"Anyone who disobeys orders will be held accountable," said a statement from the meeting, according to China Daily.

Since severe power shortages hit large parts of China's coastal industrial and commercial base two years ago, construction of coal-fired power plants has surged. Many projects have permission from the central government, but there has also been a building boom in illegal power plants that avoided Beijing's scrutiny on efficiency, safety and environmental standards.

By the end of 2004, unauthorized power plants with a potential capacity of 122 gigawatts were either finished or under construction, according to China's National Development and Reform Commission. That is more electricity than is used by the entire U.K. and is roughly one-fifth of China's total installed power capacity. Analysts say even more unauthorized construction has begun since then.

An investigation by China's cabinet found that Inner Mongolia's government had illegally approved the building of 8.6 gigawatts-worth of power stations. The coal-rich province attracted energy-intensive industries such as chemicals. Inner Mongolia's economy boomed. In 2002, the economy expanded 12.1%. Last year, it grew 21.6%.

The growth has come at a high cost. Already plagued by sandstorms that also cover Beijing, Inner Mongolia has experienced worsening air pollution and acid rain. Water, already scarce in the arid region bordering the Gobi desert, is now in even shorter supply, said Han Xiaoping, an analyst with Beijing Falcon Pioneer Energy Co.

The deaths occurred last year when one of the buildings for a generator at the $366 million Xinfeng Power Plant collapsed after orders to speed up construction.