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Saturday, 14 November 2009
Beijing rejects projects worth 200b yuan
China, the world’s third-largest economy, has rejected requests to build industrial projects worth almost 200 billion yuan (HK$227.06 billion) and plans new measures to close factories to curb overcapacity and pollution.
China, the world’s third-largest economy, has rejected requests to build industrial projects worth almost 200 billion yuan (HK$227.06 billion) and plans new measures to close factories to curb overcapacity and pollution.
The government would target the steel, aluminium, coke, cement, paper and utility industries, Zhu Xingxiang, a director of the environment evaluation department at the Ministry of Environmental Protection, said yesterday.
David Cohen, an economist with Action Economics in Singapore, said: “This shows China is confident enough that the momentum of growth will begin addressing structural excess capacity problems.
“One of the motives will be to improve the profitability of existing companies.”
The measures underscore the country’s determination to prevent record bank lending from fuelling an investment bubble without imposing restrictions that may endanger an economic rebound.
Late last month, 10 ministerial-level government bodies launched a round of policies that attempt to control overcapacity in the steel, cement, flat glass, coal-based chemicals, polysilicon and wind power equipment sectors.
Overcapacity is stalling a profit recovery at steelmakers including Baoshan Iron and Steel, with prices falling 18 per cent 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.”
The ministry was conducting an environmental review of planned steel projects in Shandong province after local governments approved construction without proper evaluation, he said.
The environmental protection bureau in June suspended works at Shandong Rizhao Steel Holding’s steel plate project and Weifang Iron and Steel Group’s five-million-tonne project.
BOC International analyst Belle Chan said it was imperative that the government clamped down on capacity expansion.
“Due to relaxed lending policies, steel capacity actually rose this year instead of being curbed as intended by the government,” she said.
“It was also fuelled by distributors making big orders in the first half in anticipation of higher demand in the second half on the back of Beijing’s four trillion yuan economic stimulus package.”
Urban fixed-asset investment, a major driver of steel and cement demand, surged 33.1 per cent in the first 10 months of the year, Beijing said this week.
Officials have indicated they plan to tighten lending terms after an 8.92 trillion yuan boom in new loans in January to last month.
With 660 million tonnes of capacity at the end of last year, output is projected to be only about 560 million tonnes this year. No official figure has been released on the capacity added so far this year.
The China Iron and Steel Association said earlier this month oversupply saw steel inventory held by distributors surge 90.9 per cent from the year’s start to the end of September, causing prices to slide and industry profit to shrink.
So far, consolidation of the fragmented sector has been slow as the cumbersome issues of employment redundancies and taxation revenue loss by local governments have to be addressed.
“Industry restructuring is a long, tough and important task,” Li Pumin, a spokesman for the National Development and Reform Commission, said yesterday.
In the coke industry, Beijing in September banned expansion projects for three years. It also said it would eliminate 800,000 tonnes of aluminium smelting capacity. Coke is used to make steel and aluminium is used in car parts and packaging.
Chan said the aluminium sector’s capacity expansion had been under better control than the steel sector, partly because of a higher concentration of industry players.
China’s plans to close more coke plants may inflame a trade dispute with the United States and the European Union, which last week filed a World Trade Organisation complaint over the mainland’s export restrictions on the product.
2 comments:
Beijing rejects projects worth 200b yuan
Plants to be shut amid overcapacity
Bloomberg and Eric Ng
14 November 2009
China, the world’s third-largest economy, has rejected requests to build industrial projects worth almost 200 billion yuan (HK$227.06 billion) and plans new measures to close factories to curb overcapacity and pollution.
The government would target the steel, aluminium, coke, cement, paper and utility industries, Zhu Xingxiang, a director of the environment evaluation department at the Ministry of Environmental Protection, said yesterday.
David Cohen, an economist with Action Economics in Singapore, said: “This shows China is confident enough that the momentum of growth will begin addressing structural excess capacity problems.
“One of the motives will be to improve the profitability of existing companies.”
The measures underscore the country’s determination to prevent record bank lending from fuelling an investment bubble without imposing restrictions that may endanger an economic rebound.
Late last month, 10 ministerial-level government bodies launched a round of policies that attempt to control overcapacity in the steel, cement, flat glass, coal-based chemicals, polysilicon and wind power equipment sectors.
Overcapacity is stalling a profit recovery at steelmakers including Baoshan Iron and Steel, with prices falling 18 per cent 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.”
The ministry was conducting an environmental review of planned steel projects in Shandong province after local governments approved construction without proper evaluation, he said.
The environmental protection bureau in June suspended works at Shandong Rizhao Steel Holding’s steel plate project and Weifang Iron and Steel Group’s five-million-tonne project.
BOC International analyst Belle Chan said it was imperative that the government clamped down on capacity expansion.
“Due to relaxed lending policies, steel capacity actually rose this year instead of being curbed as intended by the government,” she said.
“It was also fuelled by distributors making big orders in the first half in anticipation of higher demand in the second half on the back of Beijing’s four trillion yuan economic stimulus package.”
Urban fixed-asset investment, a major driver of steel and cement demand, surged 33.1 per cent in the first 10 months of the year, Beijing said this week.
Officials have indicated they plan to tighten lending terms after an 8.92 trillion yuan boom in new loans in January to last month.
With 660 million tonnes of capacity at the end of last year, output is projected to be only about 560 million tonnes this year. No official figure has been released on the capacity added so far this year.
The China Iron and Steel Association said earlier this month oversupply saw steel inventory held by distributors surge 90.9 per cent from the year’s start to the end of September, causing prices to slide and industry profit to shrink.
So far, consolidation of the fragmented sector has been slow as the cumbersome issues of employment redundancies and taxation revenue loss by local governments have to be addressed.
“Industry restructuring is a long, tough and important task,” Li Pumin, a spokesman for the National Development and Reform Commission, said yesterday.
In the coke industry, Beijing in September banned expansion projects for three years. It also said it would eliminate 800,000 tonnes of aluminium smelting capacity. Coke is used to make steel and aluminium is used in car parts and packaging.
Chan said the aluminium sector’s capacity expansion had been under better control than the steel sector, partly because of a higher concentration of industry players.
China’s plans to close more coke plants may inflame a trade dispute with the United States and the European Union, which last week filed a World Trade Organisation complaint over the mainland’s export restrictions on the product.
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