'Toughest year' ahead for work to cut capacity

Five target areas

Power: The central government has said it is essential to further reduce excess capacity in this sector. The average annual utilization rate of the nation's power-generation equipment fell last year to the lowest level since 1964.

The China Electricity Council has forecast that the growth rate in power consumption will decrease this year.

"Power enterprises will face an overall loss this year," according to Qiao Baoping, president of China Guodian Corp, one of the five major power enterprises. The company has pledged to reduce its investment in thermal power (it has canceled six projects) to cut production and increase investment in clean energy.

Nonferrous metals: China aims to cut surplus capacity of nonferrous metals like aluminum. In a plan drafted by the Ministry of Environmental Protection to tackle air pollution, one target is to cut the total aluminum production capacity in Hebei, Shandong, Henan and Shanxi provinces by 30 percent, 21st Century Economic Herald reported.

The four provinces account for one-third of the total national capacity. The main types of nonferrous metals are aluminum, copper, brass, silver and lead.

Oil refining: Like with steel and coal, growth in capacity in this sector has continuously outpaced growth in demand in China. Analysts expect the glut in refined fuels could last for years, partly because of the slowing demand domestically and a surfeit of refining capacity. Cutting overcapacity remains the biggest challenge for refiners, according to Li Li, director of energy research at Independent Chemical Information Service China. The nation has issued quotas of 81.93 million metric tons of crude oil to 22 refineries to tackle the problem.

The crude oil processing capacity reached 521 million tons in 2015, operating at only 75 percent of full capacity, well below the global operating rate, said Su Jun, a general manager at China National Petroleum Corp.

Cement: A fund is expected to be launched this year to encourage cement producers to cut capacity, as the nation attempts to reduce overcapacity in the building materials sector.

Kong Xiangzhong, head of the China Cement Association, told China Securities Journal the fund will be used to reward manufacturers that cut capacity. The industry, which faces a glut of supply and low market concentration, needs to explore market-oriented methods to carry out supply-side reform, Kong said.

Data from the National Bureau of Statistics show China produced 2.4 billion metric tons of cement last year, up by 2.5 percent on 2015. Yet the output from Beijing and nine other provincial regions decreased year-on-year.

Shipbuilding: The Ministry of Industry and Information Technology set out a plan in January to cut excess capacity and push industrial transformation in this sector.

It states that small and medium-sized shipyards that have low manufacturing skills and poor supervision should be weeded out, while competitive manufacturers should be encouraged to expand through reorganization or mergers and acquisitions.

Li Zhengjian, deputy secretary-general of the China Association of the National Shipbuilding Industry, said companies who do not meet safety and environmental standards or have high accident rates should be targeted in efforts to cut overcapacity.

Chongqing has said it is planning to cut capacity by 20,000 dead weight tons over the next three years.