China vows to curb industrial overcapacity

(Agencies)
Updated: 2009-09-30 14:09

BEIJING: China's cabinet has laid out detailed plans to curb overcapacity in industries such as steel, aluminum, 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, it also aimed at new industries such as wind power equipment and silicon.

For the steel industry, the government set a firmer tone of clamp-down by calling some 10 percent 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 cubic meters or less, and rolling furnaces and electric furnaces with a capacity of 30 metric tons or less, must be eliminated.

Previous steel capacity restrictions have had the opposite of the government's desired effect, leading to more capacity as mills rushed to expand to avoid restrictions.

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

It noted that traditional coal-to-chemical capacity, a highly polluting and water-consuming sector, exceeded demand by 30 percent. In the first half of 2009, only about 40 percent of coal-to-methanol facilities were in operation.

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