China takes on steel overcapacity

A list of 45 Chinese steel enterprises that meet national iron and steel industrial standards was published Tuesday in the latest move to tackle excess production capacity that has plagued the sector.

The Ministry of Industry and Information Technology (MIIT) said in a statement that the listed enterprises are up to standards regarding product quality, environmental protection, energy consumption, workmanship and equipment, production scale as well as work safety and other social responsibility.

The 45 qualified steel makers consist of 30 state-owned enterprises like Baosteel and Angang Steel, and 15 private companies, whose combined crude steel output last year reached 300 million metric tons, or 41.4 percent of the country's total steel output, according to the ministry.

The 45-member list was chosen among 104 firms located in 19 provinces, municipalities and autonomous regions.

Miao Zhimin, deputy director of the Raw Materials Department of the MIIT, said the ministry would work with other government departments to support those qualified enterprises and facilitate the merger and restructuring of the steel industry.

Companies that fail to meet the national standards will have their room for development squeezed with higher electricity prices and stricter administrative measures, Miao said.

Even though China has remained the world's largest steel producer for many years, overcapacity has been a longstanding problem for the sector, as local governments prefer to increase the size of local steel companies to drive local economies, leading to a combined production capacity that surpasses the combined output by the rest of the world.

China's steel capacity stood at around 1 billion metric tons in 2012, but major steel makers registered a mere 1.5 billion yuan in combined profits last year, according to MIIT data.

Currently, the country relies mainly on administrative approval to regulate the steel industry but has little effect in eliminating overcapacity.

"It has been proved that the existing regulation measures fail to stop the indiscriminate development of the steel sector," Miao said, adding "we should explore a new way to regulate the sector and make it follow market rules and develop orderly."

He said the MIIT would continue to review enterprises applying for examination of the national standards this year.

About 80 percent of the existing steel production capacity will be regulated according to the new national standards by 2015, he added.