Overcapacity cuts called crucial job

2017-03-07
China Daily

China will further reduce excessive steel and coal production capacity and extend capacity cutting efforts to energy sectors this year, a senior official with the nation’s top economic planning body said on March 6.

“Cutting overcapacity remains the major task this year while implementing supply-side reform,” said Ning Jizhe, vice-minister of the National Development and Reform Commission, at a news conference on the sidelines of the ongoing national legislative and political advisory sessions. “Strengthened efforts in cutting overcapacity will continue in 2018.”

China plans to slash 50 million tons of steel capacity and 150 million tons of coal capacity, and eliminate or postpone the building of 50 million kilowatts of coal-fired power generation capacity this year.

After completing the closure of 65 million tons of steel capacity last year, ahead of schedule, plans for another 50 million tons comprise an ambitious target, according to Ning.

After meeting the target this year, the utilization rate, or the proportion of steel capacity used for production, will be about 80 percent, a level that is normal in a market economy, Ning added.

The global average utilization rate is 68 percent, according to the World Steel Association.

He Lifeng, minister of the National Development and Reform Commission, said the economic growth target of around 6.5 percent set for 2017 is both necessary and attainable. The target is necessary because job creation is an important task, he said.

“According to our experience, each percentage point of GDP growth will help create about 1.7 million jobs,” he said.

Without quality growth at a reasonable level, the country will find it hard to meet the job creation target of over 11 million, unveiled in the Government Work Report that Premier Li Keqiang delivered on Sunday, He said.

Zhang Lin, a senior analyst with dz18.com, an e-commerce platform for the steel industry, said cutting 50 million tons of steel production capacity is not an easy objective to achieve.

“More capacity cuts this year will leave no room for local governments to cheat,” said Zhang.

As more factories shut down, Zhang added, relocating laid-off workers might put more pressure on the government this year.

Compared with cutting industrial capacity in the steel sector, tasks set for coal production and coal-fired power generation capacities might be easier to achieve on time, according to Yang Fuqiang, a senior adviser at the Natural Resources Defense Council, a nonprofit environmental organization.

“The binding target for coal consumption in the 13th Five-Year Plan (2016-20) for the energy sector will help China better control the supply side of coal production,” Yang said.

The 13th Five-Year Plan for the energy sector, released in February, set a coal consumption ceiling for the first time, limiting the percentage of coal consumption among major energy sources to 58 percent.

Yang said that as China moves to a greener growth model and toward use of more renewable energy resources to generate electricity, the burden for capacity cuts in coal-fired power plants will lessen.

More than 20 percent of electricity in China was produced by renewable resources as of 2016, according to the National Energy Administration.

China plans to generate 27 percent of electricity from renewable resources by the end of 2020, according to the administration.