SteelOrbis Shanghai
In 2006,
China's government started to implement its policy of getting rid of outdated steel
production capacity. Due to various reasons, effectiveness of the measures in question has been found to be lacking. For the purpose of achieving tangible progress on the issue,
China's National Development & Reform Commission called in the related government ministries for several
conferences on how to push the difficult work forward. Some of the conclusions of these
conferences have been or else will soon be put into practice. The effects of the governmental actions have started to appear gradually, and it is expected that further reductions in outdated steel capacity will be seen in 2007.
The major measures decided at the above-mentioned
conferences for the elimination of outdated steel
production facilities may be summarized under the following two headings:
Local governments at all levels should be responsible for implementation
Although previously the local governments were required to take action on the issue in question, due to the lack of inspections and of punitive measures, only a few of them took practical action. After all, the local governments are also the beneficiaries of the continued existence of outdated steel capacity. The most important central government measure to increase the effectiveness of its plans is to make the local governments responsible for the work involved and to reward them in accordance with the results they achieve. At the current juncture, the final details of the related regulations are close to completion, after several rounds of discussions among all parties.
To use market forces to get rid of outdated facilities
The state had hoped that the problem of outdated steel
production capacity would be resolved by the invisible hand of market when steel products were in oversupply in the local market. However, due to the remarkable demand increases in both the local and overseas markets in 2006, the expected results have not been seen. In order to hasten the work of getting rid of outdated facilities and also to release the pressure of steel exports from other countries, the steel export rebate was adjusted to a lower rate of 8 percent. A zero export rebate and new export tax may also be seen in the near future.
Moreover, the new price systems of water, electricity and other necessary resources related to
steelmaking have been or will be put forward. The costs of the outdated and obsolete facilities will inevitably increase in the period ahead. Part-owners of small mills are already thinking about withdrawing from the steel industry.
So far, under heavy pressure from the state, some local governments have taken action to eliminate outdated facilities. At the start of December, Hebei Province - where many such outdated steel plants are located - announced its first list of old mills earmarked for closure and went on to seal up several blast furnaces. In total, 26
steelmaking enterprises on the first list will be closed down, representing nearly eight million tons of iron and steel capacity. And more lists are expected to be issued soon. Furthermore, Guangdong Province is reported to be planning to close down outdated facilities of 10 million tons in capacity, while Jiangsu and Henan provinces are also to publish their plans soon.
However, announcements are not always borne out by the reality. The practical powers of implementation of local governments in
China are not always credible. In observing developments, one must also keep one's eyes focused on what is actually happening on the ground.