By Zhou Jianqi, Enterprise Research Institute, DRC

Research Report No.35, 2017 (Total 5110) 2017-03-28

Abstract: Since 2016, the government has adopted relevant measures to cut overcapacity and suspended the operation of some enterprises and these measures have effectively restricted the production of crude steel and raw coal and optimized market supply-demand structure. Viewing from the general picture, there will be three main contradictions to be addressed relating to the reduction of overcapacity for the future work. First, the contradiction between the implementation of the mid-to-long-term plan for the reduction of overcapacity and the tight market supply during the short-to-mid period. Second, the contraction between the target of reducing ineffective supply and increasing effective supply and the difficulties in removing inefficient capacities and taking in efficient ones. Third, the contraction between the market- and law-based measures and the dominant administrative means. Since the two industries of steel and coal have basically fulfilled the target of cutting overcapacity, they could now focus on optimizing the capacity structure. The government needs to eliminate the backward and inefficient capacities, and concentrate resources on developing efficient capacities. Meanwhile, it is necessary for the government to deepen reform of the market system, allow market performance to take the place of governmental orders, let the market decide pricing and encourage enterprises to have a bigger say in governance.

Key words: reduction of overcapacity, steel and iron, coal, evaluation, main contradictions, policy options