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China closes excess capacity within 5 years

10 February 2016

The Chinese government reported data regarding the closure of excess capacity. On this step, it reported in late January 2016. The size of the closed annual capacity will be 100−150 mln. Tons. By the time the project will take 5 years. The process, therefore, will continue until 2020. Supporting him will have not only the central government. Local governments will also take an active part. Termination of the activity of unclaimed enterprises is part of an extensive program. It aims to eliminate overproduction in China's economy, reducing investment in infrastructure and industry. In addition, the government has no plans to support the construction of new steel mills. First and foremost will be eliminated small businesses. It refers to the plants, blast furnaces, which amounts do not exceed 400 m 3. Taken into account and volume converters — not more than 30 tonnes. Authorities will be encouraged acquisitions and mergers. This is a necessary step for optimal asset management. Also, it will reduce costs in cost savings of scale.

The big drawback of the program is the loss of jobs. Experts believe that the restructuring of the work could lose about 400 000 people. However, some funds will be allocated to address the problem. This and retraining of specialists, and unemployment benefits, and subsequent employment. To finance these activities is expected through the work of a special fund set up by the state. The Government considered and the possibility of obtaining additional funds for the payments to the unemployed. Local authorities are invited to implement the land on which the closable production.

CISAproveli Analysts estimate the total capacity. Their volume in the national steel sector reaches 1.2 bln. Tons of steel annually. In 2015, the volume of products produced by them has reached 803.8 million. Tons. The end result is disappointing, given the annual output capacity. Unlikely to 100−150 mln. Tons / year for 5 years will be able to solve the existing problem. US analysts from Goldman Sachs are more optimistic. The program will reduce the production of steel in China on 55−95 mln. Tons per year. In 2015, the volume of China's steel output decreased by 2.3% compared to 2014.

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