China vows to crack down on industrial overcapacity

China vows to crack down on industrial overcapacity
Published: 01 October 2009

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

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 per cent 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 58Mt of crude steel capacity under construction, most of which is illegitimate. Crude steel capacity could exceed 700Mt 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.