By Bloomberg News - Jul 26, 2013 8:26 AM GMT+0400
A worker handles a roll of steel at the Baosteel Group Corp. facilities in Shanghai. Photographer: Doug Kanter/Bloomberg
China ordered more than 1,400 companies in 19 industries to cut excess production capacity this year, part of efforts to shift toward slower, more-sustainable economic growth.
Steel, ferroalloys, electrolytic aluminum, copper smelting, cement and paper are among areas affected, the Ministry of Industry and Information Technology said in a statement yesterday. Excess capacity must be idled by September and eliminated by year-end, the ministry said, identifying the production lines to be shut within factories.
A worker handles a roll of steel at the Baosteel Group Corp. facilities in Shanghai. Photographer: Doug Kanter/Bloomberg
July 25 (Bloomberg) -- Stephen King, chief economist at HSBC Holdings Plc, talks about China's economic growth and Asia's emerging markets. King also discusses Federal Reserve monetary policy and the outlook for the global economy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
China’s extra production has helped drive down industrial-goods prices and put companies’ profits at risk, while a survey this week showed manufacturing weakening further in July. Premier Li Keqiang has pledged to curb overcapacity as part of efforts to restructure the economy as growth this year is poised for the weakest pace since 1990.
“This is a real move and is very specific compared with previous high-level conceptual framework for economic restructuring,” said Raymond Yeung, a Hong Kong-based economist at ANZ Banking Group Ltd. “They maintain the overall tone that they’re not focusing on the quantity of growth but the quality of growth.”
The move also reflected Li has settled down on the job and is willing to deepen the reform on overall economic structure, which he promised after taking over the premiership in March, Yeung said.
The Shanghai Composite Index fell 0.8 percent as of 11:30 a.m., while Hong Kong’s Hang Seng China Enterprises Index of mainland companies gained 0.1 percent.
Excess Capacity
More than 92 million tons of excess cement capacity and about 7 million tons of excess steel production capacity are expected to be wiped out under the government’s plan, Zhang Zhiwei, chief China economist at Nomura Holdings Inc. (8604) in Hong Kong, wrote in an e-mailed research note yesterday. Nomura maintained its forecast of 7.4 percent economic growth for China in this quarter and 7.2 percent in the fourth quarter.
Xinjiang Tianshan Cement Co. (000877), which trades on the Shenzhen Stock Exchange, is among companies on lists published by the MIIT accompanying the statement. It was told to phase out 450,000 tons of capacity. One factory of state-owned Wuhan Iron & Steel Group Corp., has been told to eliminate 400,000 tons of steel capacity, according to the MIIT.
“Many of these companies who are running overcapacity problems may actually have theproduction line in idle for a long time,” ANZ’s Yeung said. “So the actual impact on the growth number may not be as big as many people have expected.”
Prudent Monetary Policy
Separately, China central bank Governor Zhou Xiaochuan wrote in People’s Daily today that the nation still faces large downward pressure on the economy. He reiterated that the country will pursue a “prudent” monetary policy and “reasonable” levels of money supply and credit, according to the article in the Communist Party mouthpiece.
The industry ministry said on July 24 that China will accelerate the phase-out of overcapacity in the second half of this year.
China is struggling to meet its annual economic growth target amid signs of weakening manufacturing. A preliminary reading on July 24 for a Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics was 47.7, which if confirmed in the final report Aug. 1, would be the lowest in 11 months. Readings below 50 indicate contraction.
To contact Bloomberg News staff for this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net; Li Liu in Beijing at lliu255@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
