Structural issues related to overcapacity reduction cannot be cut across the board; development is a "protracted battle"

Reporter Feng Biao

As one of the major tasks in 2016, "to reduce production capacity is a "protracted battle" "Production capacity" has become a high-frequency word nowadays. Senior officials have frequently talked about supply-side structural reform recently, with the steel and coal industries bearing the brunt of efforts to resolve excess production capacity. With the release of relevant supporting documents for overcapacity reduction, the pace of overcapacity reduction in steel and other overcapacity industries has accelerated significantly.

Reducing overcapacity is one of the keys to economic structural adjustment. If it is promoted smoothly, it will undoubtedly help improve the profitability of enterprises and improve the efficiency of economic operations. This is also the proper meaning of supply-side reform. In addition, , overcapacity reduction is also related to the livelihood of millions of employees and their families. In order to fully understand the progress and effectiveness of overcapacity reduction in various regions and enterprises, as well as the difficulties that may be encountered in the process, reporters from "Daily Economic News" today launched the second article in the "Economic Think Tank Suggestions" series for the readers.

High-level officials will provide supply-side structural reforms on Wednesdays a week, with the steel and coal industries bearing the brunt of efforts to resolve excess production capacity.

"" reporters found that up to now, 8 documents involving the reduction of production capacity in steel and coal have been released at the ministry level. More than 10 ministries and commissions, including the National Development and Reform Commission, the Ministry of Industry and Information Technology, the State-owned Assets Supervision and Administration Commission, the Central Bank, the China Banking Regulatory Commission, and the China Securities Regulatory Commission, have all joined the "tough battle" to resolve excess production capacity.

In the view of Li Xinchuang, director of the Metallurgical Industry Planning and Research Institute, reducing production capacity is a long-term process, and there may even be recurrences. In this process, enterprises must be the mainstay, market rules should be respected, and the government Mainly do the supporting work.

“Supply-side reform not only requires cutting overcapacity, but cutting overcapacity does not mean cutting out steel. Reducing development does not mean not developing, but taking reduction as the main line to achieve 'green, orderly and intelligent' , diversification' and other 'nine-information synergy' development, reshaping the steel industry value chain and comprehensively improving steel competitiveness," Li Xinchuang said.

What are the characteristics of China’s overcapacity? What new situations and features are we currently facing? Where is the future development path of the industry? "" reporter (hereinafter referred to as NBD) interviewed Li Xinchuang with these questions.

●Talk about the problem: To resolve output, policies need to be tailored to local conditions and enterprises

NBD: Within a week, senior leaders have repeatedly stated their stance on promoting supply-side structural reforms, and the steel and coal industries have resolved excess production capacity. is the main task. What role does resolving excess production capacity play in supply-side reform?

Li Xinchuang: The central government has taken cutting overcapacity as its main task and has grasped the main contradiction in the current economic work. From an industry perspective, my country's steel industry has completed the expansion of scale and has now entered a period of reduction from incremental development. my country's steel consumption has entered a stage of peak arc decline. At present, my country's steel production capacity is around 1.14 billion tons, and the capacity utilization rate continues to be below a reasonable level. The steel industry is in a stage of comprehensive overcapacity. This is also the main reason for the current production and operation difficulties of steel companies. In 2015, the sales profit margin of the steel industry was -2.23%.

The goal of resolving production capacity is to return production capacity utilization to a reasonable level and solve the situation where supply seriously exceeds demand.

NBD: How should we view overcapacity in the steel industry?

Li Xinchuang: Overcapacity should be judged comprehensively and objectively. We should not just focus on capacity utilization. We should comprehensively analyze the industry's operating conditions, capacity utilization, industrial organization, etc. over a longer period of time. . At present, China's steel industry is already in a state of comprehensive overcapacity, but at the same time, structural problems cannot be ignored. It must be considered from the two perspectives of capacity utilization and steel flow. The overcapacity situation still differs between different varieties and different regions.

From the perspective of product line utilization rate, medium and heavy plate production capacity utilization rate is the lowest, and the surplus is the most serious; bar, wire rod, section steel, and hot-rolled wide band steel production capacity utilization rate is slightly higher, and is in a medium to high degree of surplus; and Cold-rolled electrical steel, galvanized sheets, cold-rolled wide-band steel, etc. are in slight overcapacity; from a regional perspective, based on the overall judgment of capacity utilization and steel flow direction, North China has the most severe overcapacity. In addition, relatively closed markets such as the Northwest also have serious overcapacity.

This kind of structural problem shows that reducing production capacity requires local and enterprise-specific policies, and cannot simply be a "one size fits all" approach.

●Talk about tasks: We must fight a "protracted war" to reduce overcapacity

NBD: Last year, the Central Economic Work Conference proposed the task of reducing overcapacity. So far, you know how the overcapacity reduction is progressing in various places. , at what stage?

Li Xinchuang: At present, various policies of the central government have been basically announced and have entered the implementation stage. The production capacity reduction targets announced by local governments are very strong.

I understand that some large and medium-sized steel mills have begun to take the initiative to resolve the problem. For example, Hegang Group has taken the initiative to take the responsibility of state-owned enterprises in reducing overcapacity and will reduce crude steel production capacity by 5.02 million tons this year and next. Some small steel mills were forced to shut down due to broken capital chains or serious losses.

However, it should also be noted that steel is a capital-intensive, technology-intensive, and labor-intensive enterprise. It is not easy to enter, and it is even more difficult to exit. The company is currently facing problems such as high debt pressure and employee placement.

In fact, it has taken economies such as the United States, Japan, and Europe more than ten or even more than two decades to resolve excess production capacity. It may be more difficult for my country to reduce production capacity than for the above-mentioned economies.

Therefore, reducing production capacity is a long-term process that may even occur repeatedly. It is difficult to change the situation of severe overcapacity in the short term. We must be prepared for a "protracted war."

NBD: Steel prices rose in the first quarter of this year, some steel mills resumed production, and crude steel production increased in April. What impact does this have on overcapacity reduction?

Li Xinchuang: The rise in steel prices in the first quarter is a restorative "rebound" when prices fell in the early stage. Moreover, steel production has declined, market expectations and policy expectations have improved, and credit has expanded. There is speculation in futures prices, and multiple factors have brought about an increase in domestic steel prices in the past few months. After output rebounded rapidly in April, prices fell again. This shows that my country's pattern of excess steel production capacity and oversupply of output has not changed. Therefore, the goal of resolving excess production capacity cannot be shaken.

Under market economic conditions, it is normal for prices to rise and steel plants to resume production, and price fluctuations are also normal. However, if the price fluctuates too much, it means that the market is not yet mature, and the company's expectations of market changes are too high or too low, which is not conducive to the company's rational arrangement of production and planned promotion of production capacity.

●Talk about prospects: "Nine-information synergy" will reshape the steel industry value chain

NBD: The recent State Council executive meeting proposed to reduce 10% of steel and coal production capacity among central enterprises Previously, the State Council also proposed to reduce the steel production capacity by 100 million to 150 million tons, and the sum of the goals proposed by local governments even exceeded the overall goal of the State Council. How are these tasks implemented?

Li Xinchuang: First, strengthen the enforcement of laws and regulations related to environmental protection, safety, and quality, and eliminate substandard production capacity in accordance with laws and regulations; second, guide enterprises to actively exit, improve incentive policies, and encourage enterprises to actively reduce production capacity through , mergers and reorganizations, transformation and production conversion, relocation and transformation, international production capacity cooperation and other means to withdraw part of the steel production capacity.

It should be said that both the central and local governments have a strong willingness to reduce production capacity, but I believe that enterprises should still be the mainstay, pay equal attention to market rules, insist on market pressure, and let backward and inefficient production capacity be gradually eliminated in market competition. . Now the central and local governments have announced task targets, but they must avoid redistributing tasks to enterprises through administrative means. The government's hand cannot be too long, and the government should mainly do a good job in supporting employee resettlement.

In addition, relatively speaking, central enterprises have more advantageous production capacity and also have advantages in credit. The State Council has proposed a 10% reduction target. I think it is due to the role of central enterprises in setting an example.

NBD: How do you understand your proposal to achieve reduction in development?

Li Xinchuang: In the previous era of incremental development, we relied on expanding scale to obtain benefits, and innovation was very slow. In the process of reduction, the urgency of innovation and the value brought by innovation are more prominent than in the incremental era. Reducing development does not mean not developing the steel industry, but scientific development. It is a shift from the past pursuit of scale to a focus on improving quality and efficiency. The steel industry should develop and innovate through "nine modernizations synergy" with reduction as the core, and reshape the efficient industrial value chain, that is, reduction, greenness, orderliness, quality, differentiation, intelligence, Diversification, service-oriented and internationalization will further comprehensively improve the competitiveness of the steel industry.