State media has said that anti-pollution measures are behind the steel mill closures in Hebei, while local government announcements also suggest that it is an entirely environmental matter when they say they are determined to shut mills and other industrial facilities.
Hebei’s 250 million tonne annual production capacity was built on the back of cheap credit, soaring demand for low-quality construction materials and the willingness of growth-obsessed local officials to turn a blind eye to costly pollution controls.
The Hebei Provincial Government’s immediate target is to cut steel capacity by as much as 15 million tonnes this year. Hebei Governor Zhang Qingwei (張慶偉) vowed last month to fire any official responsible for even 1 tonne of extra capacity on their patch this year.
“It is very good for the local government, because they can avoid political trouble and meet their targets,” Xu said, referring to the work already being done by market forces.
Nevertheless, there has been some resistance to the measures.
An industry source said that Tangshan had delayed an order to shut down 3 million tonnes of outdated steel production capacity at Tangshan Guofeng Iron and Steel Co Ltd (唐山國豐鋼鐵有限公司) — one of the city’s biggest producers — until next year because it was one of the few firms there which made a profit last year.
While the Qingquan plant was reprimanded last year by local authorities no longer allowed to overlook environmental violations, orders to install costly new pollution controls would have made little difference to a facility with no access to funds and already incapable of paying its employees.
Dozens of plants in Tangshan’s steel hub of Fengnan District have closed, while some are still hoping to get bank loans and others are looking to receive compensation from the local government, although there is no more cash available to bail them out, experts have said.
“There are many others that have closed even though they haven’t declared bankruptcy. They aren’t formally shut because of the financial implications — they might be in debt and the banks would close in,” a senior iron ore trader based in Tangshan said. “We expect to see more closures this year.”