OVERCAPACITY
Although China has achieved its annual targets of cutting overcapacity in the steel and coal sectors, experts warned Thursday that there are still a number of challenges ahead, including excessive debts, intensified competition among effective producers and the deployment of laid- off workers and assets.
During the three- day China- US Joint Commission on Commerce and Trade ( JCCT) in Washington DC from Monday to Wednesday, US officials urged the Chinese authorities to “commit to hosting a global steel forum to deal with excess capacity before President Barack Obama leaves office,” according to a statement on the World Trade Online website on Thursday.
The agenda during the JCCT meeting has once again put China’s battle with overcapacity in the steel and coal sectors into the spotlight, which this year has yielded significant results.
Earlier in November, the National Development and Reform Commission, the country’s top economic planner, announced that China came in ahead in its target of cutting 45 million tons of steel capacity, reaching the goal before the end of October. The country will also complete its 2016 goal of reducing 250 million tons of coal capacity before the year- end, according to the China National Coal Association on Wednesday.
As stockpiles decline, prices for steel and coal have rebounded. The price rally, combined with a recent infrastructure boom, has led to a profit turnaround among China’s steel and coal companies. In the first nine months of 2016, profits of major steel companies reached 25.21 billion yuan ($ 3.65 billion), according to the China Iron and Steel Association.
Thanks to the combination of government policies and market forces, including on- the- spot visits and local governments’ accountability systems, “China has closed a number of zombie companies and inefficient miners this year,” Wang Guoqing, research director with the Beijing- based Lange Steel Information Research Center, told the Global Times on Thursday.
But Wang noted that pushing forward a similar agenda next year will be a much more difficult task.
Pressure remains
“At the initial stage, it’s relatively easy to eliminate producers whose operating standards have not complied with government regulations, or those with inefficient and nominal capacity,” Wang said, noting that this is one of the reasons behind the success of the government’s goals in 2016. However, as such companies are squeezed out, the remaining players in the domestic market are “larger ones that are able to produce high- standard products and make profits,” Wang said. “In the next year, there will be fierce competition among