Renewed move to streamline bloated sectors

Updated: 2013-10-16 07:05

By Lyu Chang (China Daily)

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China is stepping up efforts to deal with overcapacity in five sectors, under guidelines released by the State Council, the country's cabinet, on Tuesday.

The industries with serious excess capacity - steel, cement, electrolytic aluminum, sheet glass and shipping - are the key targets, according to the guidelines posted on the government's website.

Steps to reduce excess production in each sector include blocking new projects, shutting down old facilities, reappraising projects under construction and closing illegal capacity.

China should also stimulate domestic and global demand, relocate plants overseas, restructure and merge companies and foster a fair market mechanism and environment, the guidelines said.

The move reflects the government's resolve to shift the economy away from investment in heavy industries, transform the structure of economic growth and boost industrial restructuring, experts said.

China is the world's biggest producer of steel, aluminum and cement. But overcapacity in several industries has depressed prices and crimped profit margins, causing slower economic growth.

Last year, the capacity utilization rate of the steel industry was only 72 percent. The rates were just 73.7 percent, 71.9 percent, 73.1 percent and 75 percent for cement, electrolytic aluminum, sheet glass and shipping. These were all far below international norms.

The iron and steel industry lost nearly 700 million yuan ($114.7 million) in June, the first monthly deficit this year.

The combined first-half profits of members of the China Iron and Steel Association totaled only 2.27 billion yuan, with an average profit margin of 0.13 percent, the lowest among all industries, according to CISA.

However, the overcapacity problem isn't limited to traditional industries. Capacity in emerging sectors such as solar power and wind turbines has surged beyond demand, driving prices down sharply.

Media reports have said that Sinovel Wind Group Co, China's third-biggest wind-turbine maker, will close four of its international units, amid a slowing domestic market and overcapacity in the sector.

In April, Sinovel announced a 58-percent plunge in revenue for 2012, swinging to a net loss of 582 million yuan from a year-earlier net profit of 598 million yuan.

Oliver Barron, head of the Beijing branch of North Square Blue Oak Ltd, said that overcapacity fueled by local governments through approving large-scale projects to boost local GDP has persisted for years.

"The larger companies in these industries are great assets to local governments in terms of tax revenues, employment and GDP," he said.

"Local governments like to support them and arrange subsidies or cheap credit to expand their business."

Most of the capacity added in the electrolytic aluminum and cement sectors in recent years was built without approval, an investigation by the Xinhua News Agency found.

(China Daily 10/16/2013 page13)