Central Financial Committee (CFCC) of China held a meeting on July 1, clearly putting forward “in accordance with the law and regulations to govern the enterprises low-priced and unorganized competition, guide enterprises to improve product quality, and promote the orderly withdrawal of backward production capacity.” The statement continues the recent high-frequency concern at the policy level about the “excessive competition”.
CAAM and CISA urge industry to avoid excessive competition
As previously reported by SteelOrbis on June 11, CAAM and CISA have urged related enterprises to protect interests of industry chain and resist excessive competition.
In March this year, during the National People's Congress and the National People's Congress, “comprehensively remediate ‘involutional’ competition” was first written into the government work report, in particular, for the steel industry, “continue to implement the crude steel production control mechanism, promote the integration of backward production capacity, encourage mergers and reorganizations”.
A series of movement signaled the “prevention of involutional competition” is not only a phenomenon in the economic field, while is becoming institutional governance issues, which means that the subsequent industrial policy, market regulation and factor allocation reform will continue to focus on “high-quality development”.
Supply-side reforms back on agenda
In the 2016-2019 period, China has eliminated the outdated crude steel capacity of 150 million mt amid the supply side structural reform, mainly induction furnaces, producing lower quality steel.
Market analysts thought the steel industry has begun to show signs of a shift toward “eliminating ineffective supply and strengthening high-quality production capacity”, which will be a continuation of the supply side structural reform.
PPI keeps falling, raising concerns over deflation
Future supply-side optimization will focus more on “quality and efficiency” than simple compression of production capacity as it should achieve a dynamic balance between stabilizing growth and adjusting structure, especially against the background of the continuous decline of PPI (Producer Price Index). As of May, the PPI has decreased for 32 consecutive months on yearly basis, and the rate of decline has deepened, which triggered the government’s concern of the risk of deflation and made it put forward the “prevention of excessive competition”.
However, the official statement of “supply side reform” hasn’t been heard yet, which might indicate this round of government’s “excessive competition” is more oriented towards the integration of the rule of law, institutionalization and the application of structural optimization tools and whose impact on the market requires further observation.