Overcapacity still a concern

17  January 2013

BEIJING – Since the latest data reignited concerns about excessive production capacity in some raw materials industries in China, experts have urged those industries to step up restructuring and add more value to their products.

Data released this week by the National Development and Reform Commission, the country’s top economic planner, showed that many raw materials industries have seen slowing growth and falling profits from a year earlier.

Total cement production in the first eight months grew by 5.9 percent, 12.5 percentage points slower than the same period last year, while the growth rate of crude steel output slowed 8.3 percentage points to 2.3 percent during the same period, according to the NDRC.

Profits of the country’s building materials industry dropped 9.6 percent in the first seven months this year, with cement producers’ profits plunging 53.1 percent.

The steel industry saw profits tumble 48.3 percent year-on-year, the NDRC said.

Zhu Hongren, chief engineer of the Ministry of Industry and Information Technology, said Tuesday in an exclusive interview with Xinhua that many materials industries in China are currently confronting serious problems, including overcapacity, dropping sales and sliding profits.

“However, we need to hold a broader view in assessing the current conditions of those industries, because facing difficulties now does not mean they are hopeless,” Zhu said.

The steel industry’s production last year surged three times compared with 10 years ago, giving strong support for China’s economic growth, he said.

Zhang Changfu, deputy head of the China Iron and Steel Association, said overcapacity and low prices in the steel industry are not confined to China. Steel prices both at home and abroad have been constantly dropping.

“Judging from the current economic situation and market demand in China and in the rest of the world, domestic steel producers should brace for long-term difficulties,” Zhang said.

Zhu attributed the overcapacity in China’s raw materials industries to an unreasonable industrial structure, an outdated growth pattern and unbridled capacity expansions.

“The production capacity that came into being during rapid economic growth contradicts significantly with shrinking market demand when economic growth is weak,” Zhu said.

Those industries suffering from overcapacity should strive to carry out restructuring, eliminate outdated capacity and actively develop capacities that can suit market demands, Zhu said, adding that problems might become more serious if these issues are not fully addressed.

“On one hand, we are facing excessive capacity at home; yet, on the other hand, China is importing a large number of those products from other countries,” according to Zhu.

The country must raise technological and environmental thresholds in an effort to boost those industries’ overall quality, and local governments should put restructuring at a more important place than before, he added.

China should explore markets with high added value for those raw materials industries, foster complete industrial chains with both upstream and downstream products and promote the optimization and upgrading of industrial structures, Zhu said.