China Cuts Capacity in Some Industries to Reshape Economy

July 26, 2013 Leave a comment

China Cuts Capacity in Some Industries to Reshape Economy

China ordered more than 1,400 companies in 19 industries to cut excess production capacity this year, part of efforts to shift toward slower, more-sustainable economic growth.

Steelmaking, ferroalloys, electrolytic aluminum, copper smelting, cement production and papermaking are among areas affected, the Ministry of Industry and Information Technology said in a statement posted on its website yesterday. Excess capacity must be idled by September and eliminated by year-end, it said.Premier Li Keqiang said last week that China will focus on economic restructuring when growth and inflation are within limits, which he didn’t specify. The ministry said on July 24 that China will accelerate the phase out of overcapacity in the second half of this year.

“This detailed list shows the government is serious in its efforts to restructure the economy and is prepared to tolerate the necessary pain.” Zhang Zhiwei, chief China economist at Nomura Holdings Inc. (8604) in Hong Kong, wrote in an e-mailed research note yesterday.

More than 92 million tons of excess cement capacity and about 7 million tons of excess steel production capacity are expected to be wiped out under the government’s plan, Zhang wrote. Nomura maintained its forecast of 7.4 percent economic growth for China in this quarter and 7.2 percent in the fourth quarter.

The world’s second-largest economy is struggling to meet its annual economic growth target amid signs of weakening manufacturing. A preliminary reading for purchasing managers released by HSBC Holdings Plc and Markit Economics showed 47.7 on July 24. The index, if confirmed in the final report on August, would be the lowest in 11 months. Readings below 50 indicate contraction.

To contact Bloomberg News staff for this story: Sarah Chen in Beijing at schen514@bloomberg.net

Filed under Macro Trends

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