Big plan to wipe out overcapacity

16:25, March 08, 2010      

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China's central government has rolled out an ambitious plan to wipe out overcapacity and backward productivity as part of its efforts to ensure a more sustainable and greener growth with higher added value.

The State Council, or China's cabinet, has adopted a notice that calls for 14 ministries to work together to eliminate backward industrial capacity through tightening loans, stricter control on land use and differentiated tax policies, the Shanghai Securities Journal reported on Friday.

Priority has been shifted to economic restructuring this year, after the world's third biggest economy achieved a staggering 8.7 percent growth in 2009 and has gradually emerged from the financial crisis.

Industry insiders have said that it is difficult for the country to maintain rapid growth relying on investment and cheap exports, which have been hit hard in the global financial crisis. Thus it is an imminent task for the country to foster advanced capacity and drive growth more by domestic expansion.

The notice is focused on electrical power, coal, steel and iron, cement, nonferrous metal, coking, paper making, leather making and dyeing and smoothes out policies and schedules on how to wash out industrial overcapacity in 2010-11, according to the newspaper.

The China Banking Regulatory Commission, China's watchdog on banks, has asked banks to retain strict controls on loans to industries with high energy consumption, high emissions or overcapacity. For instance, no loans are now allowed for any new projects in six industries with overcapacity and ship making unless these projects have approval from the National Development and Reform Commission, China's top economic planner. The six industries are steel and iron, cement, glass sheet, chemical processing of coal, polysilicon and wind power equipment.

In addition to tightening loans, the notice bans government agencies from supplying land to build backward industrial capacity or overcapacity. Companies that fail to wipe out backward capacity on schedule will be punished, their applications for new land will be refused and costs for its use may be hiked.

Moreover, the notice asks ministries to work out a plan to choke back domestic demand and restrict export for goods produced in an energy-inefficient and polluting way.

Economic measures, such as charging higher utility prices (electricity, water and gas) for lagging capacity, would also be implemented, the notice said. China will also study how to levy an environment tax.

Businesses and individuals are also banned from importing, producing, selling and using equipments or products that fall into disuse in the country, said the notice.

Companies and regions unable to eliminate overcapacity may be deprived of new projects, and licenses of some firms may even be revoked.

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