Capacity at 19 industries in China cut; 1,400 companies affected

July 29, 2013 at 5:58 AM
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BEIJING, July 29 (UPI) -- More than 1,400 companies in 19 industries in China were ordered to eliminate excess capacity because of overproduction problems, the government said.

Companies were ordered to make the cuts by the Ministry of Industry and Information Technology.

Affected industries include cement, steelmaking, ferroalloys, electrolytic aluminum, copper smelting, chemical fiber and paper making, China Daily reported.

The report said the action is part of the government's determination to reform the economy, which has been slowing down. It said said excess production in the affected industries has led to price-cutting wars.

"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. in Hong Kong, wrote. "This reinforces our view that aggressive policy stimulus is unlikely in 2012 and that growth should trend down."

Zhang told China Daily more than 92 million metric tons (101.4 million tons) of excess cement capacity and about 7 million metric tons (7.7 million tons) of excess steel production capacity could be eliminated out under the government plan.

Some companies affected by the order said they had already decided to cut excess capacities and the government order would have little impact on their business -- or prove to be beneficial.

"From a medium- to long-term perspective, it will stabilize metal prices and improve the profitability of leading companies in these industries," a metallurgy industry analyst said.

In May, Sublime China Information Co. Ltd., a leading commodity information portal, said China's coal industry continues to suffer from dramatic falls in prices and weak demand because of domestic overcapacity and growing imports, China Daily said.

Sublime China analyst Liu Dongna said since last year industry profits have been "seriously affected" by China's economic slowdown, excessive production capacity and increasing new energy applications.

Liu, citing hydropower generation starts, said there is no clear sign that the domestic coal industry can pick up. Liu said some of the medium-size coal mines may go bankrupt if the conditions continued.

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