China faces worsening overcapacity

Li Wei, director of the Development Research Center, an influential think-tank for China's State Council (cabinet), said the country's economic recovery is not solid enough because of serious structural problems and various risks, one of which was serious overcapacity and slow progress in alleviating it.

According to Li, of 3,545 enterprises surveyed recently by the Development Research Center, 71 percent of respondents defined China's overcapacity situation as "very serious" or "relatively serious."

The average utilization rate of production capacity of the 3,545 enterprises was at 72 percent, down 0.7 percentage points from a year ago. And 67.7 percent of respondents said their enterprises need more than three years to absorb the excessive production capacity.

An annual report by the Development Research Center had ranked overcapacity the first problem and risk for the Chinese economy, Li added.

Measures have been taken to tackle the problem as the leadership repeatedly warned against the consequences of worsening overcapacity.

President Xi Jinping urged in late July that tackling overcapacity should be prioritized, with more efforts to boost industrial restructuring.

Premier Li Keqiang has on many occasions vowed to curb blind expansion and improve capital efficiency, along with energy and resource use to restructure the economy.

In October, the State Council issued the Guideline to Tackle Serious Production Overcapacity which lists five primary sectors that have a serious problem -- cement, electrolytic aluminum, sheet glass, shipping and steel.

The guideline prescribed measures to battle overcapacity in the five sectors -- new projects are forbidden, projects under construction should be reappraised, illegal capacity should be cleared up, outmoded capacity should be eliminated in an orderly way and efforts should be made on standards and admittance.

A report by the State Information Center, another government think-tank, proposed strict enforcement of the guideline and more reforms to eliminate the root causes of overcapacity in the system.

It called for deepening reforms in the fiscal and taxation system, financial system, state-owned enterprises, environmental protection system and the pricing mechanism for resource products.

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