CHINA: Steel plant shut-downs planned By James Kynge in Beijing
China announced at the weekend plans to shut thousands of small steel plants as part of a series of measures this year to reduce overcapacity and end more than two years of deflation.
State media said more than 2,500 steel smelters and mills with annual capacities below 100,000 tonnes were to be closed, making tens of thousands of workers redundant and raising the prospect of strong opposition from local authorities and one-industry towns.
China has the world's largest steel industry with 3.2m workers employed in some 6,100 enterprises, most of which produce low quality products inefficiently.
Many of them are not expected to survive the upsurge in competition that China's accession to the World Trade Organisation, expected later this year, may bring. China's industrial import tariffs are to fall from an overall 24.6 per cent in 1996 to an overall average of 9.4 per cent by 2005.
Steel output in 1999 is expected to reach 122m tonnes, up 6.47 per cent from 1998. But this year, Beijing plans to cap production at 110m tonnes, partly to alleviate competitive pressures that have caused price wars and hit profit margins.
Wang Xiaoqi, an official at the State Administration of Metallurgical Industry, said Beijing expected resistance to the closures by local governments dependent on the plants for revenue.
But, he was quoted in the China Daily as saying, the policy would be enforced with strict measures, such as denying designated mills raw materials, electric power, credit and markets for their steel.
This year, China is set to reduce capacity in several sectors such as coal, sugar, grain and cotton. Analysts said that entry into the WTO could also have the effect of reducing capacity in those industries, such as cement, in which there are thousands of inefficient plants.
But despite the impact that such capacity reductions may have on investment, the Chinese Academy of Social Sciences, a top government think tank, predicted economic growth this year at 7.5 per cent, up from 7.1 per cent last year.
Liu Jian, vice-minister of agriculture, said the planted acreage of corn, rice, wheat and cotton was to be cut to control output. Bumper harvests for several consecutive years have been behind declining agricultural produce prices and falling incomes for many in a rural population of 900m.
The area under grain would fall by 3m hectares to around 110m and the area planted with cotton would to drop by 300,000 to 3.3m, according to Mr Liu. The US Agriculture Department has predicted China's cotton production in 2000-01 will drop to 17.5m bales.