Unemployment risk still a big obstacle: analysts
China has made some progress in its efforts to cut industrial overcapacity in recent months, particularly in the coal and steel sectors, according to a Xinhua report on Monday.
However, analysts warned that difficulties still remain, including the potential threat to tens of thousands of jobs resulting from such efforts and local governments' reliance on these industries.
Major coal companies in North China's Shanxi Province, a center of coal production in the country, saw a decline in output in April to about 58.19 million tons, a drop of 21.3 percent year-on-year, the Xinhua News Agency reported on Monday, citing official data.
The decline was partly a result of a number of measures taken by the Shanxi provincial government since the beginning of April to cut excess capacity in coal production, the Xinhua report said.
In April, the Shanxi provincial government started to implement guidelines issued by the State Council, China's cabinet, including asking coal companies to cut production to below 84 percent of their previous production capacity under a 330-day production schedule, according to the report.
In the same month, the Shanxi government asked the top five State-owned coal companies in the province, including Datong Coal Mine Group and Shanxi Coking Coal Group, to halt production at some coal mining sites, which were previously privately owned but now belong to the State-owned companies following a restructuring process, Xinhua said.
Earlier data also showed that steel production has been falling in recent months. In the first quarter of 2016, crude steel production in China dropped by 3.2 percent from the same period last year, chinanews.com reported on April 19, citing Ning Jizhe, head of the National Bureau of Statistics (NBS).
Ning said changes in economic trends in the first quarter, including the decline in coal and steel production, have shown the initial impact of the country's supply-side reforms, according to the report.
Positive signs have also been seen in other industrial areas in April, according to NBS data released on Friday.
At the end of April, the inventory of finished industrial goods declined by 1.2 percent, the first decline in recent years and another sign of cuts in overcapacity, the NBS said.
Difficulties remain
Despite initial progress in cutting overcapacity, difficulties will remain and it will be a long process, analysts noted.
A major problem associated with cutting overcapacity is the risk of large-scale unemployment. In the coal and steel industries, an estimated 1.8 million workers will be laid off in the next five years as a result of the efforts, People's Daily reported on Friday.
"It's a dilemma for steel enterprises," Xu Hongcai, director of the Economic Research Department under the China Center for International Economic Exchanges, told the Global Times on Monday.
"Those workers have been involved in this industry for years, and are mostly middle-aged," Xu said. "Retirement is unrealistic. Learning new skills and being relocated to a new industry is very hard. So what should the companies do?"
China's recent economic slowdown also adds to the difficulty. Some local governments rely heavily on these industries and hope to wait for other provinces to take action against overcapacity first, experts noted.
Yang Danhui, an analyst at the Institute of Industrial Economics under the Chinese Academy of Social Sciences, agreed, but said that the issue will be mitigated once the government discovers new areas of investment to boost local economies.
Another difficult task is upgrading the country's industrial production so that it is more geared toward high-end products, Yang told the Global Times on Monday.
Although the domestic iron and steel industry is burdened with overcapacity, China is still importing a large amount of high-end steel products from other countries, according to Yang.
"It's a little bit embarrassing," she said. "The rapid and low-level expansion in previous years in heavy industries like steel, construction materials and nonferrous metals fueled China's economic boom, but the limited technology has lead to today's situation."
Slashing overcapacity will take time, Yang noted.
"We are still in the first stage in this long-term battle," she said.
