China Vows to Rein in Industrial Overcapacity

BEIJING, Oct. 19 -- China vowed on Monday to curb overcapacity in six industrial sectors by withholding approval for new investment and by starving them of financing.

    The industries are steel, cement, flat glass, coal chemicals, polysilicon and wind power equipment, according to a statement issued by 10 ministries, led by the National Development and Reform Commission,

    China would order banks not to finance projects in these sectors that do not meet government guidelines, the ministries said.

    Investors would not be allowed either to raise money for unauthorised expansion through bonds, short-term bills, medium-term notes, convertible bonds, initial public offerings and secondary share sales.

    The statement ordered local governments to pay attention to signs of overcapacity in aluminum, shipbuilding and soy-crushing but said they would not be subject to the same restrictions.

    "Many sectors are still reporting serious problems of overcapacity and redundant construction, and some problems are even getting worse," the ministries said.

    The statement, which builds on a directive issued last month by the State Council, China's cabinet, said that controlling overcapacity was a priority in restructuring the economy.

    "China's economy is currently at a critical stage of stabilisation and recovery," it said.

    The guidelines reflect concern that too much of the government's 4 trillion yuan ($585 billion) fiscal stimulus package and accompanying surge in bank lending is finding its way into the industrial sector.

    The money is meant to go into infrastructure, affordable housing, rural development, technological upgrades and strengthening the social safety net.

    The NDRC has repeatedly taken steps in recent years to control overcapacity in a range of sectors, chief among them steel, cement and metals smelting.

    But China's economic boom, and the support of local governments eager to bolster economic growth and employment, has largely thwarted the planning agency's attempts.

    Past measures have included lending curbs and bans on smaller plants. Size restrictions have often backfired, as executives expand to avoid getting shut down.

    Efforts to limit runaway capacity expansion by enforcing environmental regulations have also proven difficult to carry out because environmental bureaus often wield less power than local officials who back the investments.

    Monday's statement was issued ahead of a news conference by the NDRC, China's top economic planning agency.

    The ministries for industry, finance land and environment, were among those that put their names to the statement, as did the People's Bank of China and the China Banking Regulatory Commission.

    (Source: Reuters)