China to use tougher environmental standards to tackle capacity glut

August 12, 2016 11:23 PM EDT

An employee works at a steel factory in Dalian, Liaoning Province, China, June 27, 2016. Picture taken June 27, 2016. REUTERS/Stringer

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SHANGHAI (Reuters) - China will use the stricter enforcement of environmental, safety and energy efficiency standards as well as tougher credit controls to help fight against overcapacity in key industrial sectors, the government said.

The world's second-largest economy has identified overcapacity as one of its key challenges and it has already pledged mass closures in the steel and coal sectors, but it has so far fallen behind on its targets.

The Ministry of Industry and Information said on Friday in a draft policy document published on its website ( it would "normalize the stricter implementation and enforcement of mandatory standards" to tackle overcapacity in sectors such as steel, coal, cement, glassmaking and aluminum.

It would implement a "differential credit" policy that would allow lenders to extend loans to help firms restructure while cutting off funding for poorly performing enterprises targeted for closure.

Firms that fail to comply with new energy efficiency targets would be given six months to rectify and would be closed if they fail to make progress. Those that continue to exceed air and water pollution standards would be fined on a daily basis and in serious cases ordered to shut.

It said authorities would cut off power and water supplies, and even demolish the equipment of firms that fail to meet environmental and safety standards. Facilities could also be sealed off to prevent them from going back into operation.

The ministry also repeated a previous pledge to implement differential and punitive power pricing policies to force firms to toe the line.

Beijing is concerned that some local governments have not been acting with enough urgency when it comes to dealing with overcapacity problems. On Thursday, the state planning agency singled out regions such as Inner Mongolia, Fujian and Guangxi for failing to make progress.

China plans to close 45 million tonnes of annual crude steel capacity this year, and 250 million tonnes of coal production, but only a third of the closures were completed by the end of July, the National Development and Reform Commission said.

(Reporting by David Stanway; Editing by Jacqueline Wong)

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