Business

Thursday October 1, 2009

China lays down plans to curb production capacity


BEIJING: China’s cabinet has laid out detailed plans to curb overcapacity in industries such as steel, aluminium, cement and wind power, warning that the country’s economic recovery could otherwise be hampered.

In a reiteration of existing policy targets, the State Council said meeting the government’s long-standing goal of reducing overcapacity was urgent because the result of inaction would be factory closures, job losses and rising bad bank loans.

“What especially requires our attention is that it is not only traditional industries such as steel and cement that suffer from productive overcapacity and are still blindly expanding,” it said in a notice posted late on Tuesday on www.gov.cn.

While highlighting overcapacity in conventional sectors such as steel and cement – both energy-guzzling and polluting, it also aimed at new industries such as wind power equipment and silicon.

For the steel industry, the government set a firmer tone of clampdown by calling some 10% of the country’s crude steel capacity illegitimate, but did not elaborate what it would do about it.

China is the world’s biggest steel producer and consumer.

“There is 58 million tonnes of crude steel capacity under construction, most of which is illegitimate. Crude steel capacity could exceed 700 million tonnes and overcapacity will intensify if curbs are not implemented in time,” it said.

The cabinet said it would no longer approve or support any new steel projects or any expansion in existing projects.

By 2011, blast furnaces with a capacity of 400 cu m or less, and rolling furnaces and electric furnaces with a capacity of 30 tonnes or less, must be eliminated.

The cabinet’s strident warning about overcapacity underscored why Chinese officials have been circumspect about the economy, repeatedly saying that it has shown signs of recovering from the global financial crisis but is still not on solid ground. — Reuters

On aluminium smelters, the Cabinet repeated pledges announced in May to ban for three years new capacity and to remove small plants scaled at 800,000 tonnes per year or below.

In unusually blunt wording, the cabinet also pointed its finger at local authorities.

“Some regions have acted illegally. We are once again seeing cases of illegitimate approvals, of construction starting before it has been approved, and of construction starting even as the approval process is underway,” it said.

On Tuesday, the People’s Bank of China said it will stick to its accommodative monetary policy to support an economy that is suffering from weak external demand.

Also on the blacklist is cement of which China is the world’s top producer and consumer: projects that had not kicked off construction as of Sept 30 would be halted and reviewed, the notice said. Certain provinces will also be asked to make plans to eliminate outdated capacity within three years.

Any additions of new capacity must be met by corresponding and equivalent cuts in outdated capacity, it said.

“China’s cement production capacity will rise to 2.7 billion tonnes per year if all approved projects start operation, and market demand totals only 1.6 billion tonnes,” it said.

For the wind power industry, it said that in 2010 Chinese companies would produce equipment equivalent to 20 million KW of capacity, but that the country would install only 10 million kilowatts of actual capacity. — Reuters


For Another perspective from the China Daily, a partner of Asia News Network, click here


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