China reaffirms commitment to cut steel overcapacity, but urges patience as it undertakes economic transition

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Cold rolled coils in the storage yard

China, the world’s largest steel producer and consumer, is resolute in its commitment to reducing overcapacity in the sector, although this may result in job losses, Xinhua news agency said in a commentary, as Beijing came under increasing pressure to reduce output to help the global steel industry recover.

China’s industrial overcapacity is a byproduct of the stimulus program implemented during the global financial crisis, during which China contributed about 50 percent to world economic growth, Xinhua said, adding that now that the global economy is showing signs of picking up, the country has been blamed for flooding overseas markets with cheap steel.

“It is unfair to rely on China for economic growth during times of strife, only to sing another tune when the global economy warms.”

The state-owned news agency said that measures by China to reduce excess capacity are there for all to see. Huge subsidies have been issued to help steel and coal companies resettle their redundant workers, as the two sectors will have to reduce their workforce by a combined 1.8 million.

Moreover, loans and credit to the steel sector are now under much tighter scrutiny, it said, adding that China has shut down steel factories with a total capacity of over 90 million tonnes over the past five years and plans to reduce this by an additional 100 million to 150 million tonnes by 2020.

The northern province of Hebei, which produces one fourth of the country’s steel, pledged to reduce iron and steel output by 17.26 million tonnes and 14.22 million tonnes, this year,the commentary said.

Despite a recovery in global steel prices, the province asked local governments to not approve any new steel projects or allow steel mills that had already been closed to resume operation. Otherwise, local party and government leaders will be removed from office, it said, adding that Hebei is not alone in combating overcapacity. Resource-rich provinces including Liaoning, Shanxi and Shaanxi have also rolled out their own measures.

Due to the country’s unwavering commitment to the cause, crude steel output continued to decline in the first four months of the year, falling 2.3 percent year on year, compared with a 1.3-percent decrease in the same period last year, Xinhua said.

“As the world’s biggest steel producer, China cannot just shutter all it unproductive steel mills overnight, but that does not translate into China dumping its steel products on overseas markets. As China embarks on its challenging economic transition, patience and encouragement from the global community would be more useful than criticism and trade protectionism,” it said.

 

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