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China ahead of schedule in phasing out excess capacity

Zhang Yue
Updated: Nov 24,2016 10:24 PM

China has reached this year’s target of retiring 45 million tons of steel and 250 million tons of coal production capacity, meeting both goals before the end of the year. The government will expend more efforts to prevent a backlash from overcapacity and to re-allocate workers.

This was announced by Premier Li Keqiang while he presided over the State Council executive meeting on Nov 23, as a report on the progress of retiring excess steel and coal mine capacity was deliberated.

Retiring excess industrial capacity is at the top of the government’s working agenda. While addressing the G20 summit in Hangzhou in September, President Xi Jinping said that China’s plan to cut excess capacity in the coal and steel sectors was based on China’s long-term growth plans, adding, “China has gone to the greatest lengths in its efforts to cut industrial overcapacity, and we will fulfill our promises.”

Phasing out excess industrial capacity was made a clear priority by Premier Li in the government work report in March, and he has time and again highlighted the issue at high-level meetings, saying that the government should use market-driven and law-based measures in capacity cuts.

Thanks to such efforts, a number of steel and coal producers have been improving their fortunes while the sector’s structure continues to improve. Figures from the National Development and Research Commission show that profits at industrial enterprises with revenue of over 20 million yuan grew by 8.4 percent from January to September.

Measures that have enabled such changes include shutting down small-scale and inefficient coal and steel producers and punishing illegal practices. Local governments have also placed strict controls on adding any new capacity, and local officials who break the rules are being held accountable.

While acknowledging the progress already made, Premier Li also added that the resettlement of workers has made good progress, meeting the original targets.

An online survey by the State Information Center shows that efforts in cutting excess capacity were applauded by 87.74 percent of respondents.

The year 2016 marks the start of China’s efforts to cut excess capacity, and such work does not come easily, Premier Li said.

Yet there are still issues to be addressed. For example, illegal new capacities in steel and coal in some areas are starting to be revived due to the recent rise in prices. Also, workers’ resettlement remains a problem for some enterprises. Much is yet to be done in the coming year.

The meeting on Nov 23 makes clear that resettlement of labor forces as well as control of steel and coal prices will be given more attention from now on. The meeting called for more thorough and comprehensive efforts in resettlement and a better use of fiscal subsidiaries.

The Premier stressed that in the coming year, it is important to phase out excess capacity through reform, taking further steps in mergers and acquisitions in steel enterprises, as well as integration of coal mining and power generation.

“We should bear zero tolerance to steel and coal producers that fail to meet national and environmental standards,” Premier Li said.

Government at all levels as well as enterprises should lend more efforts to worker resettlement in coal and steel companies and make full use of fiscal subsidiaries, he added.

It was decided at the meeting that the State Council will dispatch investigation teams to work on possible cases of illegal production in steel and coal to ensure the unmitigated fulfillment of the country’s target in capacity cuts.