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China's industrial overcapacity issue

Xinhua - December 27, 2009

Beijing – Industrial overcapacity had been a long-standing problem in China's economic development and set uncertainty in the country's recovery from the economic slowdown, and the government has repeatedly tried to curb overcapacity in a range of sectors.

The following are major relevant cases, quotes and figures:

On Oct. 19, China's 10 departments, including the National Development and Reform Commission and the Ministry of Industry and Information Technology (MIIT), jointly made a warning that the country's economic recovery could be hampered with chaotic expansion in certain industrial sectors, especially in steel making, cement, plate glass, coal chemical, poly-crystaline silicon and wind power equipment sectors.
On Dec. 7, China's Central Economic Work Conference (CEWC), the annual economic planning meeting, agreed at its conclusion to advance economic structure adjustment and focus on overcapacity elimination with strictly controlled lending to industries that were energy-intensive, polluting and had overcapacity.
On Dec. 21, Li Yizhong, Minister of Industry and Information Technology, said China would stop approving new projects in some industries involving excessive production capacities and duplicate constructions in the coming three years so as to guide healthy industrial development in the country. Li noted that the government will raise the access thresholds for steel, cement, flat glass, and coal chemical industries for the purposes of efficient energy consumption, environmental protection, and integrated utilization of resources.
Wang Jian, secretary general of China Society of Macroeconomics, said in an article in the state-run magazine Liao Wang (Outlook), that China is facing more industries with overcapacity, rising from 11 industries in 2005 to 17 currently.
On Dec. 23, China had again asked its financial institutions to help curb overcapacity in some industries with credit control last week, according to a joint statement issued by the People's Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission.
In 2008, China's crude steel production capacity reached 660 million tonnes with 58 million tonnes still under construction, while actual demand stood at only around 500 million tonnes.
The cement sector also saw huge excess capacity. Total capacity in the sector was 1.87 billion tonnes by the end of last year, but only 1.4 billion tonnes of cement was produced in 2008. By the end of September this year, another 600 million tonnes of capacity were under construction, MIIT figures show.