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Overcapacity acceptable to some extent, minister says

(Global Times)

10:16, March 26, 2013

The government should be tolerant of modest overcapacity, a senior government official said Monday, despite concern over what has been seen as one of the key constraints on China's economy over the long term.

Instead of repeatedly addressing the harmful impact of industrial overcapacity, Miao Wei, head of the Ministry of Industry and Information Technology (MITT), stressed Monday at the China Development Forum in Beijing that modest overcapacity is not necessarily damaging.

Enterprises would be less motivated if there is no overcapacity at all, noted the minister, who remarked that the government should even encourage a certain amount of overcapacity.

Miao's remarks may ease some of the worries about China's industrial overcapacity, but certain concerns remain.

Speaking Sunday at the same forum, Zhu Min, deputy managing director of the International Monetary Fund, stated that China's share of global value chains is not on par with its economic size, which he believes is due to the existence of severe overcapacity.

In addition to major sectors like real estate, some emerging sectors also have serious overcapacity problems, especially in the field of new energy.

Warning against a worsening of overcapacity that could cause vicious competition and even serious systemic risks, Maio called for efforts from both the government and enterprises to tackle the issue.

In late January, the MITT, together with a number of government agencies including the National Development and Reform Commission and the Ministry of Finance, announced guidelines to encourage mergers and restructuring in sectors such as auto and rare earths, which have been burdened with overcapacity.

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