China guideline for industries, plans targeting industrial overcapacity could be announced soon

June 27, 2013 Leave a comment

Thursday June 27, 2013

China guideline for industries, plans targeting industrial overcapacity could be announced soon

BEIJING: China is set to release new plans soon to slim down bloated industries from steel to shipbuilding, but applying measures on the ground will be tough after years of lax oversight during a stimulus-fuelled rush to expand in Asia’s biggest economy.

The new rules, which will also target aluminium, cement and glass-making, could be announced within weeks. Despite fairly resilient demand, all these sectors have been hit by overcapacity and failure to rein in production gluts could put more pressure on already weak markets.The global raw materials sector is buttressed by Chinese buying and while efforts to streamline industry could make the long-term outlook more sustainable, they might hit demand. Major sellers to China of iron ore, coal and other staples include Rio Tinto, BHP Billiton and Vale.

China’s new government is trying to restructure key areas of the economy, including new efforts to rein in excess credit growth that has led to asset bubbles. But in tackling industrial capacity Beijing will be wary of moving too fast to avoid social strife from excess job losses.

“Solving this problem is going to be extremely hard and it’s going to take a long time, and you can’t just expect everything to change with just one policy,” said Li Xinchuang, deputy secretary-general of the China Iron and Steel Association (CISA), which includes 80 mills accounting for about 80% of China’s steel output and is involved in policy discussions.

Beijing has sought to tackle overcapacity in sectors such as aluminium and steel for about a decade, but plans have faltered due to resistance from local governments anxious to protect growth and boost revenues.

In a sign Beijing may be getting more serious, cutting capacity is becoming a performance target for local officials.

In the past, the central government tended to rely on quasi-governmental industry bodies like CISA, with limited formal powers to drive plans through. There has been little economic or legal incentive for local authorities or enterprises to comply, and few formal regulations to determine what projects are legal or not.

The latest plan is likely to seek to block new projects, push for more mergers and acquisitions and raise targets to shut old capacity. China was previously committed to closing 7.8 million tonnes of outdated steel and 273,000 tonnes of aluminium capacity in 2013.

The plan will be supported by steps designed to cut air pollution in cities by closing or relocating heavy industry. – Reuters

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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