China’s steel capacity cut policy expected soon; could include videotaping of dismantling as evidence

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China’s top economic planner is expected to unveil this month a policy aimed at cutting excess production capacity of crude steel by 100 to 150 million tons over the next five years, Chinese media reported quoting people with knowledge of the matter.

It said the policy, which might include the need firms to videotape dismantling of facilities and equipment, will be announced shortly before the Chinese New year holidays from February 7-13, Caixin Online said.

The National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology, which co-authored the plan, had pushed for achieving the reduction in three years, but had to extend the period due to strong backlash from local governments, the website quoted one person close to regulators as saying.

The source acknowledged that meeting the goal in five years will require overcoming “many uncertainties and difficulties.” The policy requires provincial governments to submit a plan for how much manufacturing capacity they will have steel firms trim, the sources said.

Caixin said the NDRC wants proof that lower-level officials follow through, in part by videotaping the dismantling of facilities and equipment. In cases where factories will not be torn down, a court will be called upon to seal the properties and order utility companies to stop providing water and electricity to them, he said.

The NDRC plan will also have the Ministry of Finance give funds to local governments to help deal with the coming layoffs, another one of the sources said. The ministry will announce details of how it will make the payouts, Caixin reported.

Steel factories around the country churned out 800 million tons of crude steel last year but could have made 330 million tons more, official data show. That means on average only 71 percent of existing manufacturing capacity was utilised.

Caixin said many steel factories in the country have struggled to make ends meet. Last year, firms tracked by the China Iron and Steel Association reported a net loss of 64.5 billion yuan on combined revenue of 2.89 trillion yuan. This compared with a profit of 22.6 billion yuan in 2014, underscoring the challenges the industry faces amid deteriorating market conditions.

A slowing economy that has reduced the demand for key commodities, including steel and iron ore, has forced China to cut back on capacities that might also see up to 400,000 job losses, government officials have said.

 

 

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