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Substantially Enhancing Industrial Concentration:A Fundamental Solution to Cutting Steel Overcapacity



By Xu Zhaoyuan, DRC


The task of cutting crude steel production capacity by 45 million tons in 2016 has been basically completed, and the overall progress of cutting overcapacity has run smooth. However, because of rising costs for enterprises, in-coordinated working procedures, rising prices of steel and coal, and other difficulties, these would all add up to the problems of cutting overcapacity. Cutting overcapacity of steel and other heavy chemical industries will be a major task during the 13th Five-Year Plan period or even for a longer period of time. The government needs to adhere to the general direction of cutting overcapacity, promote the supply-side structural reform, and adapt to short-term fluctuations in line with market demand. When the contradiction between supply and demand is not prominent, policy measures need to focus on cultivating market competition system and optimizing the development environment of the industry. When industrial sectors face outstanding difficulties, the government needs to implement more preferential policy measures. In the short run, the government needs to focus its work on promoting the differentiation of enterprises, letting market competition determine which businesses could survive and enabling well-performed enterprises to receive higher profits. The government needs to take well-leveraged measures to strip state-owned enterprises of their social functions, implement differentiated trade policy and tighten up law enforcement relating to carbon trading, pollution charge and enterprise transformation. In addition, the current transformation fund is mainly used for state-owned enterprises to resettle employees, but private enterprises pay more attention to debt and investment issues because of their flexible employment mechanism. In the long run, the fundamental solution to the reduction of steel industry capacity is to significantly increase the market share and turn cutting overcapacity into part of business operation. First, the government needs to flesh out a fair and unified competitive environment and take measures to prevent inefficient enterprises from increasing their profits through reducing costs by neglecting environmental protection and production security. Second, the government needs to guide corporate mergers and acquisitions through finance, tax and other preferential policies. Third, the government needs to make timely adjustment of those improper policies and support business acquisitions and restructuring in a decreased manner.


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