China’s plan to slash crude steel production capacity could eliminate 400,000 jobs and might fuel social instability, according to the state-run metals industry consultancy.
Steel production capacity would be cut by 100 million tonnes to 150 million tonnes, China’s State Council announced on Sunday, without specifying a time frame. That would translate into as many as 400,000 lost jobs, China Metallurgical Industry Planning and Research Institute president Li Xinchuang (李新創) said, according to a report by Xinhua news agency on Monday. China would raise funds to help dismissed workers, Xinhua said.
China has vowed to reduce excess industrial capacity and labor in state enterprises, even as the nation battles its slowest growth in a quarter-century. It is grappling with a delicate balancing act as it strives to restructure the economy away from investment-led growth, without tipping it into a deeper slump.
“This is a positive sign for China’s adjustment to a slower, more efficient, economy, but we should wait to see how many of these job cuts are real,” said Andrew Collier, an independent China analyst and former president of the Bank of China International USA. “The high levels of debt in China would be better used to support real and growing businesses.”
DESTABILIZING FORCE
Even more workers would be affected across related industries and could potentially become a destabilizing force, Li said.
“Large-scale redundancies in the steel sector could threaten social stability,” he added.
China’s steel producers have faced slumping steel prices and the industry lost an estimated US$12 billion last year, according to Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. The industry faces a long period of restructuring and consolidation with excess capacity of about 300 million tonnes, he said.
COAL PRODUCTION CUT
Coal production capacity also is to be cut on “a relatively large scale,” according to the statement on Sunday by the State Council, China’s Cabinet.
The State Council meeting, led by Chinese Premier Li Keqiang (李克強), emphasized a need to redeploy or support employees cut by plant closures. Those measures should include: proper payment of wages and social security; help starting new businesses or transferring to other industries; and ensuring that assistance is timely, the State Council said.
Global steel production fell the most in six years last year, with China making up the biggest decline, the World Steel Association said on Monday. Steel output in the world’s largest producer and consumer of the metal shrank by 2.3 percent last year, the biggest drop in 25 years, to 803.8 million metric tonnes, according to Bloomberg Intelligence.
The easiest steel industry shutdowns are already done, HSBC Holdings PLC said in a note last month, warning large-scale layoffs might spark social unrest. Three million employees face layoffs if the steel, coal, cement, aluminum and glass industries cut production by 30 percent over two to three years, China International Capital Corp (中金公司) said in a note this month.
World Bank country director for China, Mongolia and Korea Bert Hofman said restructuring is difficult for affected workers and the government’s priority is to protect people “not inefficient enterprises that are contributing to overcapacity and deflation, which endangers otherwise healthy enterprises.”
The projected steel industry job cuts amount to about 3 percent of total new jobs created last year, and less than 0.05 percent of the labor force, according to Hofman, who is based in Beijing. China created 13 million new jobs last year.
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