Re­solv­ing Over­ca­pac­ity

ChinAfrica - - Opinion -

dis­cus­sions sur­round­ing over­ca­pac­ity at the just­con­cluded G20 sum­mit in hangzhou, east china’s Zhe­jiang Prov­ince, in­di­cate that the prob­lem has caught the at­ten­tion of the world’s leading economies. com­men­ta­tor thinks that in­dus­trial over­ca­pac­ity is a global is­sue that all coun­tries should con­front to­gether.

THOUGH over­ca­pac­ity was hotly dis­cussed at G20 Sum­mit, few con­crete ac­tion plans to mit­i­gate the im­pact of over­ca­pac­ity on world eco­nomic growth were crafted. This demon­strates that the in­ter­na­tional com­mu­nity has yet to sur­mount a num­ber of ob­sta­cles.

Over­ca­pac­ity ex­ists in a num­ber of sec­tors, par­tic­u­larly in the oil, iron and steel, coal, ce­ment and so­lar panel in­dus­tries. How­ever, few coun­tries have taken ac­tions to cut over­ca­pac­ity for fear of af­fect­ing their eco­nomic growth for the worse. De­spite that, dur­ing the B20 Sum­mit, which gath­ered busi­ness lead­ers from around the world on Septem­ber 3, Pres­i­dent Xi Jin­ping re­it­er­ated China’s goal to cut an­other 100 to 150 mil­lion tons of crude steel ca­pac­ity in five years.

The prob­lem is that economies of­ten fail to rec­og­nize their own prob­lems and in­stead lay blame on oth­ers.

As a mat­ter of fact, in­dus­trial over­ca­pac­ity is a global is­sue that all coun­tries should con­front to­gether. Take the steel in­dus­try, for ex­am­ple. It re­lies on ma­jor iron ore pro­duc­ers such as Aus­tralia, Brazil and In­dia as well as on primary steel pro­duc­ers like China, the EU, Ja­pan, In­dia, the United States and Rus­sia. Ask­ing just one of those coun­tries to re­duce its out­put won’t solve the prob­lem. The best so­lu­tion would be for all coun­tries to make con­certed ef­forts to­ward ad­dress­ing over­ca­pac­ity.

Cut­ting an af­flicted in­dus­try’s over­all pro­duc­tion ca­pac­ity is of­ten re­garded as the only way to ad­dress such prob­lems. Con­trary to this con­ven­tional wis­dom, the most ef­fec­tive so­lu­tion is de­rived from a com­bi­na­tion of in­creas­ing the de­mand for the prod­uct while curb­ing out­put.

As the sec­ond largest econ­omy in the world, China has over­ca­pac­ity and high in­ven­tory is­sues, which have be­come a drag on the coun­try’s growth. China there­fore in­tro­duced its sup­ply-side re­form pol­icy at the end of 2015 in a bid to mend the prob­lem. China is the first among the ma­jor world economies to cut ex­cess ca­pac­ity, and on mul­ti­ple oc­ca­sions, the Chi­nese Gov­ern­ment has called on the in­ter­na­tional com­mu­nity to ad­dress eco­nomic is­sues through col­lab­o­ra­tion.

On the one hand, ne­go­ti­a­tions can be car­ried out be­tween var­i­ous coun­tries’ trade as­so­ci­a­tions to cap the lev­els of steel pro­duc­tion, im­ports and ex­ports of those coun­tries in­volved. It should be noted that in­ter­na­tional in­dus­trial ca­pac­ity co­op­er­a­tion should be equal and mu­tu­ally ben­e­fi­cial as well as take into con­sid­er­a­tion the rel­e­vant coun­tries’ de­vel­op­ment needs.

On the other hand, coun­tries can work to­gether to ex­pand mar­ket de­mand. Many de­vel­op­ing coun­tries that would like to im­prove their peo­ple’s liveli­hoods have large mar­ket po­ten­tial but no cap­i­tal, large de­mand but no prod­ucts. There­fore, coun­tries bur­dened with over­ca­pac­ity can make use of the mar­kets in th­ese ar­eas. The Belt and Road Ini­tia­tive launched by China pro­vides great op­por­tu­ni­ties for cut­ting over­ca­pac­ity. The ini­tia­tive is not de­signed to trans­fer ex­cess stock, but to in­crease de­mand and pro­mote pros­per­ity in coun­tries in­volved.

Nev­er­the­less, there are mul­ti­ple prob­lems sur­round­ing in­ter­na­tional ef­forts to com­bat over­ca­pac­ity, which can­not be re­solved overnight. Dur­ing the 18th China-eu Sum­mit held in July in Beijing, China ac­cepted the EU’S pro­posal to form a work­ing group to seek so­lu­tions to the prob­lem. China will al­low the EU to mon­i­tor and su­per­vise China’s steel prices, ex­port vol­umes and the na­tion’s sub­si­dies to steel plants in or­der to help them de­cide whether China has taken ef­fec­tive mea­sures to ad­dress and re­duce over­ca­pac­ity. This show­cases China’s com­mit­ment to tack­ling the is­sue through in­ter­na­tional co­op­er­a­tion.

Dur­ing the G20 Sum­mit, world lead­ers agreed to es­tab­lish a global fo­rum on ex­cess steel sup­plies. It’s time for coun­tries to dis­cuss to­gether strengthening over­ca­pac­ity re­duc­tion and co­op­er­a­tion ef­forts.

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