China has this week ordered 58 companies, ranging from steel, coke and cement producers, to cut excess production capacity by the end of the year, in the latest attempt to ease overcapacity in bloated sectors.
This is the third batch of enterprises required by the Ministry of Industry and Information Technology to cut overcapacity by the end of 2013, following more than 1,400 companies in July and another 67 earlier this month.
The orders came as China struggles to digest production gluts from an investment boom and generous subsidies in the past few years that saw producers in "favored" sectors expand rapidly with little regard to real market demand.
The average utilization rate in oversupplied sectors such as steel is below 75 percent, far lower than the international average, and around 22 percent of production capacity in China's major industrial companies sat idle in the first half of the year.
According to Zheng Xinli, executive deputy director of China Center for International Economic Exchanges, the government is looking to boost domestic demand, encourage producers to go global, push mergers and acquisitions, as well as setting higher environment threshold to reduce overcapacity.
"The administrative orders are short-term cures, the key to a balanced economy is to allow the market play a larger role," urged Gary Liu, executive director of CEIBS Lujiazui Institute of International Finance in Shanghai.
Source: Xinhua
