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China Plans Factory Closures, Rejects $29 Billion of New Plants

Jul 27th 2015 at 7:09 AM


China, the world’s third-largest economy, said it plans new measures to close factories to curb overcapacity and pollution after this year rejecting requests to build industrial projects worth almost 200 billion yuan ($29 billion). The government will target the steel, aluminum, coke, cement, paper and utility industries, Zhu Xingxiang, director of environment evaluation department at the Ministry of Environmental Protection, said today in Beijing. “This shows China’s confident enough about the momentum of growth to begin addressing structural excess capacity problems,” said David Cohen, an economist with Action Economics in Singapore. “One of the motives will be to improve the profitability of existing companies.” The measures underscore China’s determination to prevent record bank lending from fueling an investment bubble without imposing restrictions that may endanger an economic rebound. Overcapacity is stalling a profit recovery at steelmakers including Baoshan Iron & Steel Co. with prices falling 18 percent since touching a 10-month high on August 4. “The steel industry is the focus of our supervision,” Zhu said. “There is too much capacity being built without government approval.” Baoshan Iron & Steel, the largest Chinese mill, narrowed losses to close 0.7 percent down to 7.60 yuan in Shanghai trading. Aluminum Corp. of China Ltd., the biggest maker of the metal in the nation, fell 0.8 percent to HK$8.69 in Hong Kong. Stable Growth “Industry restructuring is a long, tough and important task,” Li Pumin, a spokesman at the National Development and Reform Commission, the country’s top economic planner, said at the same conference today. “The purpose of that is to ensure the stablilty and continuity of economic growth.” Urban fixed-asset investment surged 33.1 percent in the first 10 months, the Chinese government said. Officials have signaled plans to tighten lending after an 8.92 trillion yuan ($1.31 trillion) boom in loans in January to October. The government’s 4 trillion yuan stimulus spending has spurred overproduction of steel and rising inventories has led to lower prices, the China Iron & Steel Association said this month. The U.S. this year imposed antidumping charges on some Chinese steel products, which U.S. Commerce Secretary Gary Locke said today weren’t protectionist measures. The proposed policies may include closing or relocating “seriously-polluting” plants, helping factories upgrade their technology, and offering compensation to companies and workers for closures, Zhu said today. Trials will be conducted before the measures are implemented nationwide, he said. Tighten Approval “In the future, we are also tightening approval for hydropower projects as they will damage local biology and fishing,” Zhu said. The ministry is also conducting an environmental review of planned steel projects in Shandong province after local governments approved construction without proper evaluation, Zhu said. The environmental protection bureau in June suspended works at Shandong Rizhao Steel Holding Co.’s steel plate project and Weifang Iron & Steel Group’s 5-million-ton project. The Chinese government banned the expansion of coke projects for three years in September, and has said it will eliminate 800,000 metric tons of aluminum capacity. Coke is used to make steel and aluminum is used in car parts and packaging. China’s plans to close more coke plants may inflame an existing trade dispute with the U.S. and the European Union, which last week filed a World Trade Organization complaint over the Asian nation’s export restrictions on the product.

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