Slash­ing ca­pac­ity ‘prime task’ for 2014

China Daily (Hong Kong) - - BUSINESS - By WEI TIAN weitian@chi­nadaily.com.cn

Tack­ling ex­cess ca­pac­ity will be one of the top tasks on China’s eco­nomic agenda in 2014, as the is­sue be­comes a ma­jor chal­lenge to main­tain­ing the pace and qual­ity of eco­nomic growth.

“The Chi­nese econ­omy still faces down­ward pres­sure next year,” the Cen­tral Eco­nomic Work Con­fer­ence pointed out on Fri­day, cit­ing the ca­pac­ity is­sue weigh­ing down some sec­tors as one of the ma­jor chal­lenges fac­ing the world’s sec­ond-largest econ­omy.

The key an­nual eco­nomic meet­ing, which sets the tune for the fol­low­ing year’s eco­nomic pol­icy, vowed to make stren­u­ous ef­forts to ad­just the coun­try’s in­dus­trial struc­ture by elim­i­nat­ing ob­so­lete and un­needed ca­pac­ity and pro­mot­ing in­no­va­tion-driven growth.

“We will vig­or­ously de­velop strate­gic emerg­ing in­dus­tries, speed up the de­vel­op­ment of ser­vice sec­tors and pro­mote the op­ti­miza­tion and up­grad­ing of tra­di­tional in­dus­tries.

“We will cre­ate an en­vi­ron­ment that will en­able en­ter­prises to be­come the main force in in­no­va­tion,” the CEWC meet­ing de­clared.

In the process, the gov­ern­ment will strengthen the pro­tec­tion of in­tel­lec­tual prop­erty rights and im­prove tax poli­cies to fa­cil­i­tate in­no­va­tion.

Au­thor­i­ties also called for mea­sures to guar­an­tee new jobs for laid-off work­ers.

In the mean­time, the Na­tional De­vel­op­ment and Re­form Com­mis­sion, the coun­try’s top plan­ning agency, re­vised an in­vest­men­tap­proval cat­a­log in a bid to avoid new pro­duc­tion ca­pac­ity in re­dun­dant sec­tors.

While grant­ing more free­dom to lo­cal au­thor­i­ties in ap­prov­ing in­vest­ment projects in most sec­tors, a move meant to stream­line the in­vest­ment ap­proval pro­ce­dures, the NDRC re­tained ap­proval rights over cer­tain sec­tors with ex­cess ca­pac­ity, such as steel and alu­minum. The cen­tral gov­ern­ment will also re­tain ap­proval power for coal- fired power plants and coal ex­plo­ration.

Those rights won’t be trans­ferred to lo­cal gov­ern­ments un­til more de­tailed en­try rules are clar­i­fied.

Mean­while, new fa­cil­i­ties for the pro­duc­tion of steel, alu­minum, ce­ment, plate glass and ships are strictly pro­hib­ited, ac­cord­ing to the NDRC.

Mao Zhen­hua, di­rec­tor of the Eco­nomic Re­search In­sti­tute at Ren­min Univer­sity of China, said the ef­fort to tackle ex­cess ca­pac­ity may not yield im­me­di­ate re­sults be­cause of re­sis­tance from lo­cal gov­ern­ments. But elim­i­nat­ing un­needed ca­pac­ity will ben­e­fit the rel­e­vant in­dus­tries over the long term by low­er­ing lever­age in th­ese sec­tors.

“Con­sol­i­da­tion in the coal sec­tor is nearly com­plete, al­though the ef­fect won’t be clear un­til down­stream de­mand im­proves. But the steel sec­tor will still see new ca­pac­ity out­strip­ping elim­i­nated fa­cil­i­ties over the next three years, and so will the alu­minum sec­tor.

“The ce­ment sec­tor is the only dis­ci­plined sec­tor that does not see too much over­ca­pac­ity,” Mao said.

Stricter reg­u­la­tion of smaller man­u­fac­tur­ing plants will re­duce ca­pac­ity in the ce­ment mar­ket and ben­e­fit lead­ing play­ers, Fitch Rat­ings Inc said in a re­cent re­port.

Ce­ment com­pa­nies will ben­e­fit from an in­crease in av­er­age sell­ing prices in 2014, sup­ported by de­mand from in­fra­struc­ture and prop­erty con­struc­tion ac­tiv­i­ties, Fitch said.

LIU DEBIN / FOR CHINA DAILY

Work­ers at a steel plant in Dalian, Liaon­ing prov­ince. A state­ment from the Cen­tral Eco­nomic Work Con­fer­ence said that the gov­ern­ment will cut over­ca­pac­ity in some sec­tors, in­clud­ing iron and steel.

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