China details plan to combat steel overcapacity

5 February 2016

China’s State Council, or cabinet, said it plans to cut the country’s crude steel capacity by between 100 million and 150 million metric tons over the next five years, in the latest effort to help the nation’s iron and steel industry, which is battling with excess capacity.

Local governments must shut down outdated capacity at steel mills and help them upgrade their technology, according to a set of guidelines posted on the main government website late Thursday.

Localities must also accelerate the disposal of so-called “zombie firms” through mergers and acquisitions, restructuring of debts and liquidation, the cabinet said.

The central government will step up fiscal and financial support for the steel mills that will have to cut employees.

Early retirement is encouraged, according to the guideline. Those who were planning to retire within the next five years can choose to do so early. The firms will pay them living allowances and continue paying into their pensions and medical insurance. But those who retire can’t draw on their pensions until they reach retirement age.

About 500,000 workers will likely lose their jobs in the steel industry, The Economic Observer reported Monday, citing Chi Jingdong, deputy secretary-general for the China Iron and Steel Association.

Net profits of the steel sector dropped nearly 68% last year from a year earlier, official data showed.