New govt plan to remove excess industrial capacity

China is mulling a plan to eliminate outdated industrial production capacity, China Securities Journal reported Tuesday, as part of a broader effort to ensure sustainable economic growth.

The plan will focus on eliminating backward production capacity in the steel, cement, electrolytic aluminum, flat glass and shipbuilding sectors, the report said, citing unnamed sources.

The plan aims to improve the utilization of existing capacity by setting industry access standards and it will also phase out outdated capacity through market mechanisms, the report said.

The report did not give a specific date for when the plan will be announced.

The Ministry of Industry and Information Technology (MIIT) and the National Development and Reform Commission did not respond to a request for comment by the Global Times Tuesday.

"Outdated industrial capacity is an old problem but it has become more prominent as the economy continues to face downward pressure," Chen Yao, director of the Institute of Industrial Economics at the Chinese Academy of Social Sciences, told the Global Times Tuesday.

"Eliminating outdated industrial capacity is a necessary step toward China's long-term goal of restructuring its economy away from rapid growth and toward a greater focus on quality," Chen said.

Data released Monday by the MIIT showed that the production of crude steel reached 390 million tons in the first six months, an increase of 7.4 percent from a year ago.

The debts of large- and medium-sized steel makers rose to 3 trillion yuan ($489.03 billion) in the first five months, up 6.5 percent year-on-year, with the debt-to-asset ratio rising to 69.4 percent in the period, the MIIT data showed.

"Debts of steel companies continue to rise, with most small- and medium-sized steel companies suffering losses. But they do not cut their production for fear that banks will not lend to them," Wang Guoqing, a senior analyst at Beijing Lange Steel Information Research Center, told the Global Times.

"The government has stepped up its efforts to eliminate excessive capacity in the steel industry since the beginning of the year, including tightening control of loans to the steel companies. Now would be a good time for steel makers to merge and consolidate," Wang said.

On Wednesday, the MIIT ordered more than 1,400 companies in 19 industries including steel, aluminum and cement to wind down outdated production capacity by the end of September.