Deep­en­ing mar­ket re­forms will help re­duce over­ca­pac­ity

China Daily (USA) - - VIEWS -

The gov­ern­ment vowed on Tues­day to ac­cel­er­ate ef­forts to re­duce ex­cess pro­duc­tion ca­pac­ity, a task that tops the cen­tral eco­nomic agenda. This is not the first time the cen­tral author­i­ties have ex­pressed their re­solve to press ahead with the for­mi­da­ble task.

Still, pol­i­cy­mak­ers should drawfrom the past lessons of cor­po­rate re­struc­tur­ing to en­sure that re­duc­ing the over­ca­pac­ity will not pro­duce un­de­sired side­ef­fects as be­fore.

Xi­aNong, a se­nior of­fi­cial with the Na­tional Development and Re­form Com­mis­sion, China’s top mar­ket reg­u­la­tor, said in the steel sec­tor, 47 per­cent of the tar­geted ex­cess ca­pac­ity has been re­duced and the pace will be ac­cel­er­ated in the com­ing months. It in­di­cates that the ca­pac­ity-cut­ting pres­sure has be­come heav­ier, trig­ger­ing ris­ing con­cerns that the gov­ern­ment may fail to ac­com­plish one of the key tasks it has set for this year.

Such con­cerns are un­der­stand­able, but un­founded. The real con­cern is not whether the task will be ac­com­plished, but how it will be achieved.

This is not the first time the coun­try has at­tempted to re­duce ex­cess pro­duc­tion ca­pac­ity. At the start of this cen­tury, China made a sim­i­lar move be­cause of the se­ri­ous over-sup­ply in sec­tors such as ce­ment, steel and alu­minum.

How­ever, af­ter the on­set of the 2008 global fi­nan­cial cri­sis, China launched a mas­sive stim­u­lus pack­age to an­chor the econ­omy. Al­though it played a de­ci­sive role in sta­bi­liz­ing growth, much of the stim­u­lus went to fixed as­sets and con­struc­tion. China’s steel and ce­ment pro­duc­tion in­creased dra­mat­i­cally in the fol­low­ing years as the bur­geon­ing econ­omy drove up de­mand for rel­e­vant prod­ucts and, in re­sponse to that surg­ing de­mand, the lo­cal gov­ern­ments en­cour­aged more pro­duc­tion.

China re­mains a mixed econ­omy, with gov­ern­ments play­ing an im­por­tant role in mak­ing and im­ple­ment­ing eco­nomic development plans.

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