Data from the first quarter indicates promising progress is being made on China’s economic development. But further efforts should be made to reduce overcapacity through the market and legislation so that excessive capacity can be eliminated in the long term.
As many State-owned enterprises set targets and take measures to get rid of overcapacity in steel and coal industries, it is expected that 5.95 million tons of steel and 24.73 million tons of coal production will be cut in 2017.
In addition, efforts will also be made in industries of non-ferrous metal, shipbuilding, refinery, building materials, and electricity.
Seeing the positive economic figures in the first quarter, over-optimism grows among some people and slowed the pace to reduce outdated capacity.
In the long term, a clear focus is needed to reduce overcapacity. Despite the 6.8 percent year-on-year industrial growth, a three-year high, the overall conditions that led to overcapacity in many industries remain.
The current economic recovery and change in over-producing industries is mainly attributable to supply-side structural reform, with price increases helping to effectively control overcapacity.
However, such developments do not change the reality that overcapacity will linger in some industries for a long time as reckless expansion in manufacturing due to short-term price rise will again drag the industries into the mire of overcapacity.
Taking the steel industry as an example, even though it turned losses into gains in 2016, the sale profit rate was only 1.08 percent.
In the first quarter of this year, the steel industry reaped profits of 23.3 billion yuan ($3.4 billion) with a 2.77 percent profit rate, which is low compared to other industries. Not to mention the fact that 19 percent of steel companies are struggling with losses.
Thus, efforts to further eliminate overcapacity in many industries and promote industrial transformation should not be relaxed, and a long-term view and proper methods should also be taken to create a stable market environment.
