Oct 16, 2013
Translated by Gao Menglu

China's State Council yesterday released a document which outlined how the central government plans to deal with the persistent problem of overcapacity in some key sectors over the coming five years.

The policy guidelines clearly set out what reforms need to occur in several sectors experiencing severe overcapacity. The State Council said the sectors refer to the cement, electrolytic aluminium, sheet glass, shipping and steel industries.

New projects that expand capacity will be forbidden. Projects that are already under construction will be reappraised. Illegal capacity that has already been added in violation of existing laws should be "cleared up" and outmoded capacity should be eliminated in an orderly way.

The document also says that efforts should be made to improve industry standards and lift limits to market access.

The State Council warned that "proper measures must be taken now, or cut-throat competition would effect the market, which will cause bigger industry losses and unemployment, and then escalate to harm the healthy development of the industry or even influence people's livelihood and social stability."

Li Xinchuang (李新创), President of China Metallurgical Industry Planning & Research Institute, told Chinese National Radio that policy-makers are now paying more attention to this problem.

Overcapacity first found its way on to the State Council's agenda in late 2005. At that time, ten industries including, steel, electrolytic aluminium, calcium carbide, ferroalloys, coke, automobiles, cement, coal, electricity and textiles were categorized as exhibiting evidence of overcapacity.

Over the past decade, the State Council has repeatedly released regulatory policies and restrictions aimed at putting a stop to haphazard investment and unneccesary construction. However, these efforts have had little impact.

The stimulus package launched at the height of the Great Financial Crisis in late 2008 also aggravated the problems of overcapacity that existed in certain industrial sectors.

This time, the State Council has set specific goals that need to be reached over the coming five-year period.

The policy document also outlined 8 specific tasks and 4 general principles that will need to be completed and adhered to in order to achieve these goals.
 
One highlight of the document is that progress in addressing overcapacity will added to the performance appraisal of officials.

Officials are being told that they must investigate relevant cases strictly and those who fail to do so will be held responsible.

A measure of an individual's ability to prevent overcapacity and the construction of redundant projects will also be added to the system for appraising the performance of local government officials.

Links and Sources
Chinese National Radio: 化解产能过剩 国务院出台“路线图”
Economic Observer Online: China Moves to Rein in Overcapacity