State-owned firms pledge more cuts to pro­duc­tion ca­pac­ity

China Daily (Hong Kong) - - BUSINESS -

BEIJING — China’s cen­tral State-owned en­ter­prises have pledged to con­tinue to cut pro­duc­tion over­ca­pac­ity in some in­dus­trial sec­tors, aim­ing to re­duce steel ca­pac­ity by 5.95 mil­lion met­ric tons and coal by 24.73 mil­lion tons.

“De­tailed plans have been made by cen­tral SOEs,” said an in­sider who wanted to be anony­mous.

China Hua­neng Group said it was con­sid­er­ing cut­ting 9.14 mil­lion tons of coal pro­duc­tion ca­pac­ity by the end of 2018 while deal­ing with 16 of the group’s “zom­bie com­pa­nies”.

Zom­bie com­pa­nies are eco­nom­i­cally un­vi­able busi­nesses, usu­ally in in­dus­tries, with se­vere over­ca­pac­ity, which only sur­vive due to fi­nanc­ing from the gov­ern­ment and banks.

China Poly Group Corp, a Staterun con­glom­er­ate, vowed to close in­ef­fi­cient coal mines and re­or­ga­nize 39 of its sub­or­di­nate com­pa­nies to im­prove prof­its.

The lat­est ef­forts by the cen­tral SOEs will re­in­force their achieve­ments made in 2016 in re­duc­ing over­ca­pac­ity.

Last year, the cen­tral SOEs elim­i­nated steel pro­duc­tion ca­pac­ity by more than 10.19 mil­lion tons and coal ca­pac­ity by 34.97 mil­lion tons, both beat­ing an­nual tar­gets.

The ca­pac­ity cut drive by cen­tral SOEs is only a part of China’s big­ger pic­ture in slash­ing over­ca­pac­ity.

The coun­try aims to cur­tail steel pro­duc­tion ca­pac­ity by around 50 mil­lion tons and coal by at least 150 mil­lion tons this year, a key part of the coun­try’s sup­ply-side struc­tural re­form.

To im­prove its growth qual­ity and ef­fi­ciency, China be­gan its sup­ply-side struc­tural re­form in 2015 to cut over­ca­pac­ity, re­duce in­ven­tory, delever­age, lower costs and strengthen weak links.

“China’s SOE re­form is an im­por­tant link in push­ing for­ward sup­ply-side struc­tural re­form,” said Li Jin, chief re­searcher of the China En­ter­prise Re­search In­sti­tute.

Re­al­iz­ing the sig­nif­i­cance of SOEs to the coun­try’s sus­tain­able growth, China launched a se­ries of

Li Jin, chief re­searcher of the China En­ter­prise Re­search In­sti­tute

re­forms in­clud­ing cut­ting ca­pac­ity, man­ag­ing zom­bie com­pa­nies, and call­ing for in­no­va­tion among th­ese com­pa­nies.

Over­ca­pac­ity, poor cor­po­rate gov­er­nance and low pro­duc­tiv­ity had dragged down prof­its of China’s SOEs, which de­te­ri­o­rated in 2015.

In 2016, China’s cen­tral SOEs cut 2,730 sub­sidiaries and saved 4.91 bil­lion yuan ($713.4 mil­lion) in man­age­ment costs, ac­cord­ing to the State-owned As­sets Su­per­vi­sion and Ad­min­is­tra­tion Com­mis­sion.

Thanks in part to the ef­forts, cen­tral SOEs saw prof­its rise slightly. Growth last year picked up from a 5.6 per­cent de­crease in 2015.

In 2016, cen­tral SOEs made to­tal prof­its of 1.23 tril­lion yuan, up 0.5 per­cent year-on-year, ac­cord­ing to the SOE watch­dog.

This year, China pledged to deepen SOE re­form, promis­ing mea­sures such as in­tro­duc­ing a mixed own­er­ship sys­tem and more ef­forts to make SOEs leaner, health­ier and per­form bet­ter.

China has 102 cen­trally ad­min­is­tered SOEs, which man­age the bulk of the coun­try’s State as­sets.

The im­prov­ing fig­ures of the SOEs con­trib­uted to the coun­try’s broader econ­omy, which has shown more signs of sta­bi­liz­ing since the sec­ond half of 2016, with in­di­ca­tors in­clud­ing fac­tory prices and in­dus­trial prof­its see­ing sig­nif­i­cant im­prove­ments.

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