SOEs hit reduction goal

China Daily 2016-10-25

State-owned enterprises directly under the supervision of the State-owned Assets Supervision and Administration Commission have reached the goal of trimming their overcapacity this year, well before the end of 2016, according to a top official of the commission.

There are 103 SOEs directly under the supervision of the SASAC. They include three all-steel companies: Baosteel Group, Wuhan Iron & Steel Group and Ansteel Group, as well as two steel-related companies－China Minerals Corp and Xinxing Cathay International Group.

The short-term goal of capacity reduction is to cut crude steel capacity by 15 percent, or a reduction of 27 million metric tons, within three years starting from 2016. This year’s goal is a reduction of 7.19 million tons.

Li Bing, chief of the corporate reform office of the SASAC, said that the overall reduction of capacity would be completed by the companies’ own reductions of 16.4 million tons, 9.39 million tons by mergers and reorganization and 1 million tons by export cross-border cooperation.

“The future capacity reduction goal is expected to increase,” Li said.

The total crude steel capacity of the five steel and steel-related companies in 2015 stood at 138 million tons, accounting for 12.2 percent of the total steel capacity in China.

Baosteel announced in July that it would reduce its overcapacity by 9.2 million tons from 2016 to 2018. In August, it announced that the company had reached the yearly goal of reducing 3.95 million tons.

Wuhan Iron & Steel said in May that it would reduce capacity by 4.42 million tons. Yet it has not published its progress in this regard. Other steel-related SOEs have not disclosed their goals this year or their progress.

Li said that capacity reduction had become a key criterion for steel SOE leaders’ performance reviews.

“The boards of SOEs must strictly review potential investment projects,” he said.

“If any of them add new or expand existing steel capacity, the board of the company would be subjected to reorganization,” he added.

On the other hand, leaders of whose companies which had made significant progress in capacity reduction would be awarded bonus points in performance reviews and increases in salary, he said.

Xu Xiaoqing, a steel analyst at 315.com.cn, an information website on bulk commodities, said that Wuhan Iron & Steel was expected to outperform its capacity reduction goal this year and Ansteel was expected to reach its goal.

“The merger of Baosteel and Wuhan Iron & Steel in September is a signal: mergers and reorganization will be the main direction for the industry in the future. The days of blind expansion will be over,” said Xu.