Steel production to be pared over next five years

The State Council, China's cabinet, plans to cut 80 million metric tons of steel production capacity in five years, which is aimed at improving air quality and helping an industry hit hard by destructive competition.

"China should not add any single new steel project for any reason," said Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute.

He called the ban a must in order to help the environment and put an end to the unfair competition caused by steel mills that haven't installed emission-reduction equipment.

To achieve the target, Hebei province, the largest steel producer in China, will cut steel capacity by 60 million tons by 2017, which means that one-third of the province's steel capacity will be shut down by then.

The local government said on Tuesday that its goal is to reduce 15 million tons of crude steel capacity in 2014.

"Hebei will destroy blast furnaces and cut the power supply to production lines that are tapped for shutdown, which means the steel companies cannot put them back in production again," said Lu Huaying, an analyst with Lange Steel Information Research Center.

She said the central government has been encouraging companies to save energy and cut emissions for years, but the temporary measures resulted in failure when steel mills started to produce again after authorities' checks.

"This time, Hebei's government has shown its determination," she said.

"We take it seriously," said Niu Yongzhi, a local official at the Ministry of Industry and Information Technology of Shijiazhuang in Hebei province.

"It will definitely affect economic performance in coming years, but it will be beneficial to the public in the long run," Niu said.

He said the government treats all companies equally, no matter whether they are State-owned or private.

"Our standard is green production. Capacities that don't meet environmental protection standards will be shut down," he said.

Starting in 2008, when China decided to invest 4 trillion yuan ($658 billion) to boost the economy, China's steel industry entered into a period of rapid development.

National crude steel output soared from 500 million tons in 2008 to 717 million tons in 2012. During the same period, steel production capacity rose from 600 million tons to almost 1 billion tons.

"At the beginning, it is effective to use administrative measures. But market-based means and pricing mechanisms are the long-term method for solving the overcapacity problem," said Zhang Lin, a senior researcher at Lange.

She said a difficult task now facing local governments is how to relocate enormous numbers of steel industry workers.

Tangshan city, the largest steel maker in Hebei province, is home to about 400 steel companies, as well as thousands of others in steel-related industries.

As many as 400,000 people will have to look for new jobs when the projects on which they are working shut down.