Commission official Ma Liqiang warned that if the surge in investment and production in these sectors could not be slowed, it could greatly affect China's robust economy.

China recorded 8.5 per cent year-on-year economic growth during the last three quarters.

Commission data showed that production and investment in the steel and iron sectors grew by 19.4 per cent and 120 per cent respectively during the first nine months of this year.

Small iron and steel works, which were closed by local governments because of pollution and inefficiency, had resumed production, but their products remained poor in quality. At the same time, products such as cold rolling sheet steel and galvanized sheet steel were in short supply.

The commission has repeatedly sounded alarm bells this year over the state of these industries.

Excessive growth in some sectors is putting a strain on transport and power supplies, driving up the prices of raw materials and damaging industries across the nation, said Ma, general director in charge of economic performance.

Ma said many of the newest projects rely on outdated technology and equipment, affecting their ability to control pollution. They also have a tendency to consume high levels of energy.

China has also called for calm in the aluminium market, said Jia Yinsong, another official with the commission.

Aluminium production capacity is expanding "too fast," Jia warned, despite the steady rise in demand expected on the back of China's robust economic growth in the coming years.

"We have to maintain a prudent attitude on (new) projects for aluminium smelter construction," Jia said.

Jia said the government has already taken measures to curtail the expansion, by limiting approvals for new smelters, tightening financing for new projects, and closing factories that pollute the environment.

Lin Yueqin, an economic researcher with the Chinese Academy of Social Sciences, said the automobile sector is another example of an industry under pressure, with existing firms competing to expand their production capacity.

Part of the problem lies in the small scale of production and inadequate independent development capabilities within the sector.

Around 70 of the 123 plants capable of producing whole vehicles manufacture fewer than 10,000 units each per year. Meanwhile, local governments are all eager to launch new auto-related projects, said Lin.

To solve the problem of redundant investment, Lin said the investment and financing system must be reformed.

(China Daily October 23, 2003)