China Commits to Further Reductions in Steel, Coal Capacity

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By John Butcher

China committed to further reductions in steel and coal capacity March 5, but omitted details of how lasting those cuts might be or whether there would be reductions in other industries where overcapacity is also an issue.

Premier Li Keqiang read from a government work report, on the first day of the National People’s Congress, that committed the government to reducing steel capacity by around 50 million metric tons, closing at least 150 million metric tons of coal production facilities and suspending or stopping construction of no less than 50 million kilowatts of coal-fired power generation capacity.

The move was positive for the U.S. steel industry, according to Jake Parker, vice president of China operations at the U.S.-China Business Council, based in Beijing.

However, less positive was that other industries that suffer from overcapacity, including “aluminium, cement and glass manufacturing were conspicuously absent,” from the report, he added.

The report outlined ways that capacity cuts will be met, by strict enforcement of laws on environmental protection, energy consumption, quality, and safety, as well as by encouraging mergers, restructuring and bankruptcy liquidations.

Overcapacity has been an increasingly contentious issue between China and the U.S., with U.S. industry and politicians accusing China of large-scale dumping.

Last week the U.S. announced the latest in a series of anti-dumping tariffs on Chinese steel imports, covering stainless steel sheet and strip as well as carbon and alloy steel cut-to-length plate imports, after determining they are subsidized and sold below fair value.

China has claimed to be tackling the overcapacity issue, pledging to cut 150 million tons of steel production by 2020. Last year it hit reduction targets set by the authorities, cutting steel capacity by 65 million metric tons and 290 metric tons of coal capacity, according to Chinese government figures.

However, despite China “supposedly” meeting its targets to reduce capacity, it is unclear whether production lines were deconstructed or just put on hold, Parker told Bloomberg BNA. If they were simply put on hold, steel production could be ramped up again if steel prices rise, he said.

The work report also pledged greater power to market forces with a reduction in red tape and government interference, as well as a focus on fair competition.

It promised to, “reduce the discretionary powers of the government while giving the market more freedom to take its course,” said there would be a reduction in the number of industries off-limits to foreign investment and stated that local government would be given discretion to give preferential treatment to foreign firms as a means to attract investment.

Parker welcomed the comments on market liberalization, but said the lack of timelines and specifics from the “highly scripted” event would give little comfort to U.S. firms.

To contact the reporter on this story: John Butcher in Beijing at correspondents@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com

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