China's Slow Progress on Steel, Coal Overcapacity Is Due to Hostility From Vested Interests
Yicai Global
/SOURCE : Yicai
China's Slow Progress on Steel, Coal Overcapacity Is Due to Hostility From Vested Interests

(Yicai Global) July 29 -- Resistance from enterprises, banks and local governments is largely to blame for the slow progress in cutting overcapacity in China's coal and steel industries, according to an expert.

In some regions, these industries are the backbone of the local economy, Mr. Li Jin, chief analyst at the China Enterprise Research Institute, told Yicai Global. Any reduction in production capacity would adversely impact gross domestic product, employment and government revenues, he said.

China's production of crude steel fell more than 13 million tons in the first half, or about 30 percent of the full-year target, while coal output was cut 29 percent or 72 million tons, according to the latest figures from the country's state planning agency, the National Development and Reform Commission. As of the end of June, 17 regions and state-owned enterprises under central government control started to exit coal mining. Work to reduce excessive capacity has not yet started in nearly half China's provinces.

Mr. Li added that some 'zombie enterprises' should have been shut down, but they were still hoping that market prices would rebound, or the government would bail them out. A further reason for slow progress is that capacity cuts could lead to an increase in non-performing bank loans.

During an executive meeting of the State Council, the country's cabinet, held on July 27, Premier Li Keqiang stressed that effort must be made to ensure two "hard targets" by the end of the year: a reduction of 45 million tons in steel overcapacity and 250 million tons in coal.

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