China will use legal and market-based methods to deal with industrial overcapacity, Chinese Premier Li Keqiang said on Wednesday.
China is facing extreme difficulties in its bid to reduce overcapacity in the steel industry and will provide more funds to help handle layoffs and debts, the country’s state planner said on Wednesday.
China has pledged to cut steel capacity by around 45 million tonnes this year, and by 140 million tonnes by 2020, in a bid to tackle a price-sapping annual surplus estimated at around 300 million tonnes, nearly double the annual output of the European Union.
But it reached less than 30 percent of its annual target in the first half of 2016 as local governments rushed to finalize their closure plans.
The National Development and Reform Commission (NDRC) said in a notice published on its website that the next stage of capacity cuts would be “extremely difficult” as China tries to reach its targets.
It planned to “increase financial support for the easing of steel overcapacity” and ensure that unemployment and debt were handled properly.
The state planner, in an account of a government meeting held earlier this week, said China would also impose harsh penalties for the illegal construction and expansion of steel plants.
The NDRC identified the closure of so-called “zombie firms” – non-viable firms that are still operating – as a priority, saying it would use tougher environmental, efficiency, quality and safety standards to drive them out of the market.
Many in the industry have expressed concern that an improvement in steel prices, particularly in the second quarter of this year, has undermined China’s efforts to cut capacity by allowing zombie steel firms to return to profit.
But China’s vice-industry minister Feng Fei said at a press briefing on Monday that while some capacity had come back on line, it did not include plants that had already been ordered to shut down.
The state planner said the capacity cutting program was only one part of China’s efforts to rejuvenate the steel sector, with the country still committed to creating global industrial champions through the use of mergers and acquisitions.
Two of China’s biggest steel firms, Baosteel and the Wuhan Iron and Steel Group) have already announced that they are planning to “restructure” together.
“It is not simply a matter of easing steel overcapacity, but a need to focus on structural adjustment and upgrading our country’s steel sector to transform from a large steel nation to a strong steel nation,” the NDRC said.
A report released on Wednesday by the National Academy of Development and Strategy at Renmin University in Beijing found 51.43 percent of listed steel firms surveyed could be classified as “zombie firms.”
Story by Reuters.