Policy Power

Solid progress achieved in cutting overcapacity in H117

Xinhua: Positive progress and effect have been made in cutting overcapacity.

Producers of substandard steel bars were banned at the end of June, leading to a planned industry-wide investigation scheduled for later this year, said Yan Pengcheng, head of political research office and spokesperson with the National Development and Reform Commission (NDRC). In addition, 74 percent of annual target of reducing overcapacity of coal industry has been completed and regulators will handle the new problem of cutting overcapacity and stabilizing supply. Besides, Yan said exclusively to the reporter that overcapacity of electrolytic aluminum is also being reduced now.

At the same time, relation between market supply and demand and earning performance of iron & steel and coal industries are improved significantly as a large number of zombie enterprises are phased out gradually.

Solid progress made in cutting overcapacity 

China has achieved big success in reducing overcapacity in the first half of this year.

“In the first half, authorities used market power and law enforcement to cut overcapacity, making notable progress.” Yan said for steel industry, outdated production continued to be eliminated, newly increased capacity was strictly controlled, and illegal construction of iron & steel smelting projects were investigated. Producers of substandard steel bars were banned at the end of June, leading to a planned industry-wide investigation scheduled for later this year.

In terms of coal production, about 111 million tons of backward capacity was forced out of the market in the first half, completing 74 percent of the annual target. The efforts to cut excessive coal capacity improved business condition of coal companies. In the first five months, the country’s large coal companies registered total profits of 123.4 billion yuan, 120 billion yuan more than that at the same period of last year, statistics showed.

As of July 16, 198 listed companies from traditional cyclical industries such as coal, ferrous metal, cement and chemical engineering released earnings preannouncement for the first half. 158 companies or 79.79 percent of these companies announced good performance, much higher than the proportion of companies listed in Shanghai and Shenzhen stock exchanges which predicted good earning performance. In addition, as many as 96 of the 198 companies forecasted their profits to increase by over 100 percent.

It is worth noting that overcapacity of electrolytic aluminum is also being reduced now.

Previously, the reporter learnt that according to the action plan on clearing up illegal projects in electrolytic aluminum industry, work about self-inspection of enterprises and inspection of local governments should be completed and reported to the NDRC before the end of June. It is under the stage of spot check now as scheduled and supervision over the rectification is expected to finish in mid-October.

Price fluctuations do not hinder resolute to cut overcapacity.

As the top priority among the five major tasks in the supply-side structural reform, cutting overcapacity cannot stop because the market turns better. The NDRC made it clear that although coal prices have risen for the short term, its resolute to cut overcapacity will not change.

In fact, when steel prices rose last year, some people appealed to take a break in cutting overcapacity. However, decision-makers did not change their resolute in reform due to the price recovery for a short period of time.

Currently, 74 percent of the full-year targets on cutting excessive coal capacity have been achieved. Coal prices also increased year on year. Yan Pengcheng said that there are many reasons for the short-term tight supply of coal and price hike, including a rapid increase in thermal power, steel, chemical and other coal-consuming products due to economic recovery, a noticeable negative growth in hydropower and inspection in safety and environmental protection. In other words, the task of cutting excessive coal capacity will not relax.

Li Boqiang, energy expert and the chairman of (China Institute for Studies in Energy Policy, Xiamen University, believed that there are about 20-30 percent excessive coal capacity. As of now, “the capacity eliminated is much lower than the number. Therefore, although coal prices have risen, we have to adhere to the work of cutting coal productivity.”

It is sure that there is no way back in the process of cutting excessive capacity. What we have to do now is to find a balance between cutting excessive capacity and stabilizing supply. That is “to coordinate the work of cutting excessive capacity and stabilizing supply to promote a balance between market supply and demand and prevent abnormal fluctuations of prices.” Yan Pengcheng said that specifically, there are works to be done, including accelerating the release of quality productivity, increasing coordination and guarantee from transport capacity, promoting development of clean energy, promoting the signing and fulfillment of medium and long-term contracts, establishing and improving reserve system and actively guiding market expectations.

Source: Xinhua

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