Aiming to reduce the impact of the slowing down of the economy, China has decided to go for a massive cut in steel as well as coal production capacities. This would be a major part of the painful restructuring exercise of the world’s second largest economy. Steel and coal are among the key top sectors and their capacity will be trimmed by a whopping 100 to 150 million tonnes. This has become imperative, as Chinese economy shrunk its growth to 6.9 per cent in 2015, the lowest in a quarter of a century.
"China will cut crude steel production capacity by 100 to 150 million tonnes," according to an official statement by the Chinese Cabinet chaired by Premier Li Keqiang.
The State Council did not specify the deadline for such cut, but pointed out that China has cut its production capacity of crude steel by more than 90 million tonnes in recent years, state-run Xinhua news agency reported today.
China will reduce the production capacity of coal by "a relatively large margin," according to the statement. China is the world's largest producer and consumer of coal.
"Digesting overcapacity in steel and coal sectors is an important measure to promote the supply-side structural reforms," the statement said, adding that the process will deliver the industries out of trouble and achieve upgrading.
China's production of crude steel fell 2.3 per cent to 804 million tonnes in 2015, the first time the industry reported negative growth in 34 years. Any newly-added capacity in crude steel and coal industries will be "strictly controlled," the statement said.
Steel and coal have the largest inventories in China, to address this no new projects will be approved, outdated production facilities are being shut down, and "zombie" companies are being forced to shut, the state media said.
Some 1.8 million employees in the coal sector will be relocated while 360 million tonnes of outdated production capacity will be removed.
The restructuring is a by-product of efforts to steer the Chinese economy away from a manufacturing and credit-fueled growth model to one based more on innovation, the service sector and consumer spending, officials said.
