China’s government has ordered companies to close factories in 19 industries where overproduction has led to price-cutting wars, affirming its determination to push ahead with a painful economic restructuring despite slowing growth.
The Ministry of Industry and Information Technology issued orders late on Thursday to more than 1,400 companies to cut excess capacity that has led to financial trouble for manufacturers.
The affected industries include steel, cement, copper and glass. It requires some companies to close outright.
The ministry said it aims to eliminate “backward production capacity,” indicating it also is meant to improve efficiency in energy and resource use.
Other industries targeted include coke, calcium carbide, aluminum, smelting of lead and zinc, paper, alcohol, monosodium glutamate, citric acid, leather, printing and dyeing, chemical fiber and batteries.
The production glut is in part a lingering cost of the multibillion-dollar stimulus that helped China rebound quickly from the 2008 global crisis. Beijing pumped money into the economy with a wave of spending, much of it financed by state banks, on building new subways, bridges and other public works.
Higher revenues for state-owned construction companies and suppliers of steel and other building materials propped up inefficient producers and encouraged some to expand.
In the cement industry, Thursday’s order calls on companies to shut down facilities with annual production capacity of more than 92 million tons. Steel producers were ordered to eliminate 7 million tonnes of production capacity.
Communist leaders are trying to reduce reliance on investment and trade. However, a slowdown that pushed China’s economic growth to a two-decade low of 7.5 percent in the latest quarter prompted suggestions they might have to reverse course and stimulate the economy with more investment to reduce the threat of job losses and unrest.
“This detailed list shows the government is serious in its efforts to restructure the economy and is prepared to tolerate the necessary pain,” Nomura economist Zhang Zhiwei (張智威) wrote in a report. “This reinforces our view that aggressive policy stimulus is unlikely in 2012 and that growth should trend down.”
An investment boom and government subsidies to industries such as solar panel manufacturing prompted producers to expand rapidly until supply exceeded demand. Companies have been forced to slash prices, often to below production cost.
The government’s overall measure of prices charged by producers has fallen for the past 16 months, threatening a growing number with financial ruin. A major solar panel maker, Suntech Power Holdings Ltd (尚德), was forced into bankruptcy this year.