Should we be worried about our ability to grow commodity exports to China?
According to media reports, the country’s State Council (its ‘cabinet’ for want of a better word) yesterday confirmed a heavy crack down on any plans to expand capacity in a number of industries that either pollute and/ or have surplus capacity.
Judging from the media reports, the news could will slash plans companies have to grow China’s consumption of steel, aluminium, glassmaking materials and other metals; and that in turn could cut many of the big plans by local companies to ship iron ore and other commodities to China in coming years.
It won’t hit the level of aggregate consumption, just the expansion plans (which will hit future growth projections).
It could see funds from the huge $US585 billion stimulus spending scheme cut for some projects already being planned.
At the same time, the country’s central bank said Tuesday, that while the current monetary policy would be continued, "credit to high energy-consuming and environment-polluting industries would be strictly controlled", according to some reports in Chinese English language official media.
The China Daily website said that the State Council had said in an "unusually blunt" statement that highly polluting sectors including steel, coke, cement and plate glass must cut capacity, while silicon and wind power producers should pursue more orderly development.
In a reiteration of existing policy targets, the State Council said meeting the government’s long-standing goal of reducing overcapacity was urgent because the result of inaction would be factory closures, job losses and rising bad bank loans.
Without giving a specific timeframe, it placed a ban on the building of new steel plants and any projects to expand steelmaking capacity.
In the coke sector, certain expansion projects would not be allowed to proceed for the next three years and outdated facilities would be eliminated.
The government said it planned to toughen regulatory standards to restrict entry in these sectors, strengthen environmental protection, control land use and limit access to bank loans, among other measures.
It also bans for three years new plants that produce only coke — processed from coal and used as a fuel in smelting iron ore.
In unusually blunt wording, the cabinet also pointed its finger at local authorities.
"Some regions have acted illegally. We are once again seeing cases of illegitimate approvals, of construction starting before it has been approved, and of construction starting even as the approval process is underway," it said.
In the cement sector, the State Council said it would suspend and review all new projects in the pipeline.
"Proposals for new plate glass projects have been banned and all ongoing construction plans put under review.
"Plate glass and silicon manufacturers, as well as wind power producers, would be placed under stricter environmental guidelines."
In addition, no new aluminum smelters and docks will be built in China for the next three years, according to the statement.
The announcement fleshes out the announcement on August 27 from the State Council that it would ask local authorities to “resolutely [curb] overcapacity and redundant construction”; after the country’s massive stimulus measures and excess bank lending led to unchecked expansion in a number of industries.
It said industrial overcapacity could cause intense competition and derail the country’s economic recovery if no action was taken.
That statement warned that overcapacity had persisted in sectors of steel and cement, while redundant projects have also surfaced in emerging sectors of wind power and poly silicon.
The August 27 statement said that under the current situation, the country would particularly enhance "guidance" over the development of steel, cement, plate glass, coal chemical, poly silicon, and wind power sectors.
The guidance would include strict market access, reinforced environmental supervision and rigid land use permission.
According to the latest State Council statement (which was posted on the Council’s website in Chinese), investment in steel production, which hit Rmb140.5bn in the first half, was expected to lift capacity by more than 100 million tonnes (more than Japan would produce in a year) to more than 700 million tonnes this year, compared with domestic demand of about 500 million tonnes last year.
For the steel industry, the government set a firmer tone of clamp-down by calling some 10% of the country’s crude steel capacity illegitimate, but did not elaborate what it would do about it. China is the world’s biggest steel producer and consumer.
"There is 58 million tonnes of crude steel capacity under construction, most of which is illegitimate. Crude steel capacity could exceed 700 million tonnes and overcapacity will intensify if curbs are not implemented in time," it said.
The cabinet said it would no longer approve or support any new steel projects or any expansion in existing projects.
By 2011, blast furnaces with a capacity of 400 cubic meters or less, and rolling furnaces and electric furnaces with a capacity of 30 metric tonnes or less, must be eliminated.
Previous steel capacity restrictions have had the opposite of the government’s desired effect, leading to more capacity as mills rushed to expand to avoid restrictions.
In cement, demand is forecast to reach 1.6 billion tonnes t
