China Vows Crackdown on Industry Overcapacity

China's cabinet has laid out detailed plans to curb overcapacity in industries such as steel, aluminium, 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 sectors such as steel and cement -- both energy-guzzling and polluting --, it also aimed at new industries such as wind power equipment and silicon.

For the steel industry, the government toughened its tone 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.

Analysts said the immediate casualty of the clamp-down could be Australia's coking coal sector, whereby exports to China have surged more than 10-fold from a year ago to reach 14 million tonnes in the first eight months of this year.

"The policy would support our view that the surge in China's coal imports over the past few months will be short-lived. From an Australian perspective, we could be seeing some degree of a pullback over the coming months," said Clyde Henderson, a coal analyst at Wood Mackenzie consultancy in Sydney.

"But still, many other steelmakers elsewhere are now looking to restart their capacity, so that will compensate for softer demand in China."

China has recently emerged as a net importer of coking coal, in part driven by the closure of small and unsafe mines at home. The surge in Chinese demand has also helped hard coking coal prices to rebound by some 30 percent since December to around $150-$160 a tonne in the spot market.

By 2011, blast furnaces with a capacity of 400 cubic meters or less, and rolling furnaces and electric furnaces with a capacity of 30 tonnes or less, must be eliminated.

On aluminium smelters, the Cabinet repeated pledges announced in May to ban for three years new capacity and to remove small plants with combined capacity of 800,000 tonnes by 2010.

Copyright and Exemption Declaration :¢ÙAll articles, pictures and videos that are marked with "China Aluminum Network" on this website are copyright and belong to China Aluminium Network (www.alu.com.cn). When transshipment, any media, website or individual must list the source from "China Aluminium Network (www.alu.com.cn)". We seek legal actions against anyone that disobey this. ¢ÚArticles that marked as copy from others are for transferring more information to readers, do not represent or endorse their opinions or accuracy and reliability. When other media, website or individuals copy from our website, must keep the source. Anyone that changes the articles' sources will hold the responsibilities for copyright and law problems. We also seek legal actions against anyone that disobey this. ¢ÛIf any articles copied by our website concern the copyright and other problems, please contact us within one week.