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China Warns Of Excessive Industrial Investment.

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Introduction

Ali Abdullah Economics Commentary 1 LPCUWC Year 1 (2003-04) 23rd February 2004 Title: China Warns Of Excessive Industrial Investment. Source: Xinhua News Agency Author: Unknown Date of Article: August 12, 2003 Key Issue: Excessive Supply of Steel Total Words: 750 China has been having an excessive production of steel since the beginning of year 2003. The article illustrates that there has been excessive investment in the steel market (excessive production of steel). The steel is basically used in building materials, nonferrous metals, and automobiles. It also describes to us that this is due to the duplication in construction. It tells us how the government it dealing with the excessive supply of the steel and how it is affecting the economy of the country. It is leading to high rate of unemployment and bad loans that are causing loss the banking sector as mentioned later in the article. ...read more.

Middle

This is thus creating a surplus amount of steel. The line " the supply of electrolyte aluminum exceeded in china" shows us that. If this is not controlled it would lead to unemployment, pollution and bad loans for the China and some measure must be taken to solve these problems. P S P D D1 Qd Qs Q The graph above shows that due to the over supply of the steel there is surplus amount of steel in the market that is not demanded. It shows us the market in which the original steel is produced. D is the original demand curve but as the steel is cheap in the duplicate industry the demand decreases to D1. The price is fixed due to the cost of production. The supply remains the same because the government is assuming that the duplicate market has been stopped from producing. ...read more.

Conclusion

There aim is to earn dirty money irrespective of the price the environment has to pay for it. It will also cause bad loans in the banking sector. The companies that would have taken loans will not be able to pay the loan back as there would be not enough sales. There could be a number of things the government can do to solve the problem. The first and foremost thing the government should make necessary laws to stop the productions of these of these duplicate steel-manufacturing companies. They should definitely make them stop. The good quality steel could be exported to other countries which will reduce the over supply of the goods. The public should be informed about the real product and the harms that are being caused by the duplicate products to the economy and the environment. This will increase the demand of the original steel and price equilibrium will be achieved. Ali Abdullah February 23, 2004 ...read more.

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