China to ban new projects in sectors with overcapacity

[CityFarmer]

There will be more consolidations in China. These are only from SOEs, there might be also from other private sectors e.g. fabric...

China to ban new projects in sectors with overcapacity

BEIJING — China said it would block new projects in a number of sectors suffering from overcapacity, including steel, aluminium, shipbuilding and cement, according to a statement issued by the government yesterday.

The long-awaited plan to tackle long-standing supply gluts in five industrial sectors was published by China’s Cabinet, the State Council, according to the statement on China’s official government website.

Margins in sectors like steel and aluminium have been affected for years by a massive supply glut, leaving many firms suffering heavy losses and reliant on government subsidy.

According to the new plan, China will also seek to absorb overcapacity by stimulating domestic demand, relocating plants overseas, restructuring and merging existing firms and eliminating plants by strengthening environmental, safety and energy standards. BLOOMBERG
http://www.todayonline.com/business/chin...ercapacity

[Clement]

There will be more consolidations in China. These are only from SOEs, there might be also from other private sectors e.g. fabric...

China to ban new projects in sectors with overcapacity

BEIJING — China said it would block new projects in a number of sectors suffering from overcapacity, including steel, aluminium, shipbuilding and cement, according to a statement issued by the government yesterday.

The long-awaited plan to tackle long-standing supply gluts in five industrial sectors was published by China’s Cabinet, the State Council, according to the statement on China’s official government website.

Margins in sectors like steel and aluminium have been affected for years by a massive supply glut, leaving many firms suffering heavy losses and reliant on government subsidy.

According to the new plan, China will also seek to absorb overcapacity by stimulating domestic demand, relocating plants overseas, restructuring and merging existing firms and eliminating plants by strengthening environmental, safety and energy standards. BLOOMBERG
http://www.todayonline.com/business/chin...ercapacity

I think this is a step in the right direction. It is very difficult for overcapacity in these sectors to correct itself without government intervention. They have high initial capital expenditures, high fixed costs and low variable costs. In theory, they would continue to operate as long as their revenues exceeds variable costs. Everyone, by pursuing their own self interests, ends up creating collective misery.