China's State Council has sent a message to local government and ministries that funds and support under the new economic stimulus package must not be used to create even more manufacturing overcapacity; among those industries specifically noted is small bearing manufacturing, primarily for export.

However, in another area, the government is encouraging bearing manufacturing. That is for the domestic manufacturing of large, high-precision bearings for wind turbines.

Although China has all but eliminated the domestic content requirements for large wind turbines, its domestic precision manufacturing resources have not kept pace with the state-mandated growth of wind power generation capacity and infrastructure.

As a result, advanced manufacturing resources deployed by multinational bearing companies -- including SKF and Timken -- still control the market for large wind turbine bearings.

Although the central planners would prefer that local governments and agencies support infrastructure projects, such as power generation, water filtration, and similar initiatives, local governments have been difficult to keep from supporting uneconomic pet projects. Celebrating the opening of new factories often takes precedent over repairing and building roads, a reliable power grid, or environmental controls. The central government points out there is nowhere for any more excess production to go, with exports down and the world economy in the doldrums.

Exports account for approximately 35% of China's GDP 5251R9N7. But China's manufacturers have become unsustainably dependent upon exports as low-cost loans and easy access to capital have gradually created massive domestic overcapacity. In addition, that artificially high domestic growth rate created its own, artificially high, domestic demand.

As the world economy cooled and China's manufacturing exports slowed and then fell, the massive domestic manufacturing overcapacity has threatened to cause deflation, with too many goods chasing too little money.

To counter this deflationary pressure, China's central government set up these investment programs and a broad array of economic stimulus packages, targeting infrastructure projects from bridges to environmental cleanup. It remains to be seen if official support for projects such as turbine bearing manufacturing will win out over local governments' tendency to build up local manufacturing.