Governments 'face a mission impossible' if backward production capacity is not addressed

To weed out backward production capacity a healthy market environment is needed more than government policies, said an article in the Southern Metropolis Daily (excerpts below).

The central industrial administration authority issued a list of enterprises with backward production capacity on July 25 and required local governments to weed out the capacity before the end of 2013.

The government's stimulus package in 2008 helped the country overcome the global financial crisis by boosting not only infrastructure construction, but also a lot of low-level production capacities in some industries, such as cement, paper-making, iron and steel.

Most of these production capacities become excess and backward and are on the aforementioned list.

The government is just trying to control the side effects of its former bailout plan by weeding out the backward production capacity.

The central government had tried twice to persuade local governments to weed out the backward production capacity in 2004 and 2009 with financial awards. But the effects were not good.

Most of the enterprises on the list are big contributors to local financial revenue and enjoy local governments' preferential and protectionism policies. Another problem is that some of the enterprises are powerful State-owned enterprises, which were initially invited by local governments to set up their factories. It is hard for local governments to force their big guests to close up their branches.

Local governments interfere with the production factory prices and market so much that the market loses its adjustment functions. If the governments do not address the fundamental cause, they will face a mission impossible.