China needs to address industrial overcapacity

BEIJING - Addressing surplus production capacity is a major part of efforts to adjust China's economic structure and transform its pattern of development, a senior economic official said Wednesday.

Zhang Ping, head of the National Development and Reform Commission (NDRC), the top economic planner, said China as a manufacturing powerhouse has a serious overcapacity problem in some sectors.

The industrial sectors suffering most from overcapacity include steel, cement, electrolytic aluminium, plate glass and coal coke sectors, which are operating at 70 to 75 percent of their total capacity.

Emerging sectors such as photovoltaic and wind turbine manufacturing have also shown excess capacity, with a 60-percent and 70-percent utilization rate, respectively, Zhang told a press conference held on the sidelines of the annual parliamentary session.

According to widely accepted international standards, normal market competition features 80 to 85-percent utilization of production capacity.

"Under market economy conditions, a modest surplus production capacity can stimulate competition in the market and promote technical and management progress," said Zhang.

But in China, steel and cement industries are facing great difficulties due to overcapacity, Zhang said, adding that half of the companies in the electrolytic aluminium sector suffered losses last year.

The profit margin for the steel industry was only a bit higher than 1 percent, with a hefty number of companies losing money.

Zhang said China will adopt different measures, including economic and legal means, as well as naturally necessary administrative measures, to address the problem.

"Some problems could be solved through mergers and acquisitions, eliminating backward production, and encouraging more companies to tap into the overseas market," said Zhang.

He stressed that the government must respect the law of economic development, the law of the market and the law of development when dealing with the problem of overcapacity.