Searching for the way out of overcapacity woes

BEIJING - At a time when the task of capacity reduction is exerting pressure on China's heavy industries, enterprises are exploring ways, not only to survive, but also to thrive.

Wang Yu works for a coal company in Central China's Henan province and is fretting over the effects of shrinking profits on the company's 230,000 employees.

Like many in the coal and steel industries, China Pingmei Shenma, the largest coal company in Henan province that is based in Pingdingshan city of the province, has been feeling the pinch during the past two years when long-term overcapacity became enmired in a stagnant economy.

"Our workers and their families are half the city population. Some are only making around 1,000 yuan ($150) per month, less than the city's minimum wage," Wang said.

Besides worrying about workers, bankruptcy is a constant shadow.

Shaanxi Baoshen Mechanics makes brick-making machinery in Northwest China. The company's sales plummeted in 2015.

"Many other companies were forced to close down, and we are all wondering who will be next," said deputy general manager Wang Fan.

As the world's largest producer and consumer of steel and coal, China aims to cut steel capacity by 45 million tons and coal by more than 250 million tons this year.

Facing up to challenge

The way out for many companies will be laying off workers and trying to move up the value chain.

Peng Tao, of the Guizhou human resources department of the Aluminum Corporation of China, said the company has been developing tertiary businesses like logistics and real estate in an effort to find new jobs for employees. This time last year, the company had resettled 7,178 workers.

"As for the 2,000 workers with only primary or secondary school education, we set up a pension service center to employ them. The center has been running well," he added.

"Reducing staff can only cut costs, but upgrading products can re-energize the company," said Ji Yanzhao of an aluminum company in Henan. Most Chinese aluminum plants churn out raw materials and roughly processed products which have suffered sharp price drops in recent years.

"We are trying to come up with more highly processed products to increase our profit margin," he said.

Pingmei Shenma is on the same track, investing in technology to sharpen its competitive edge. "Despite lower wages, workers are still optimistic," Wang Yu said.

More supporting policies called for

The Ministry of Finance announced in May 100 billion yuan of aid for steel and coal companies cutting capacity. The funds will mainly be used to resettle laid-off workers. "A combination of measures" will attempt to resolve overcapacity through tax, land, fiscal and financial reform.

Local governments have also been providing support, such as unemployment insurance and payments to the unemployed.

While applauding the support, enterprises are expecting more from the government in terms industrial upgrades.

Mo Yihui, general manager of Lyujiaozi agriculture development company in Shaanxi province, hopes the government will put more effort into developing basic technology and offer more financing support for companies short of capital.