China is set to cut its oversized steel capacity and its announcement on April 22 of indirect measures to curb overcapacity points to this effort, said an industry analyst.
The country has asked banks to tighten lending to steel companies and to stop lending to companies that do not perform.
The new banking guidelines, also applicable to the country’s bloated coal industry, were jointly issued by the People's Bank of China, the China Securities Regulatory Commission, China Banking Regulatory Commission and China Insurance Regulatory Commission.
“Steel and coal industries are the main areas where China is trying to slash capacity and the circular underlines the financial regulators’ role in pushing forward the move,” said Lu Zhengwei, Chief Economist of Industrial Bank.
The circular containing the guidelines asked banks to continue lending to companies that were competitive or could stage a turnaround, and also help with deleveraging, according the South China Morning Post. It also asked financial service companies to assist healthy companies expand globally, helping them with raising capital in overseas markets.
The circular added that banks played a key role in removing poor performers from the system and asked banks not to extend credit to new projects not encouraged by the current policy.
And the current policy is clearly geared toward cutting capacity in the steel and coal industries. About 1.8 million jobs were expected to be cut in the two sectors, according to the China’s Ministry of Human Resources and Social Security. Hebei province in northern China is the hub of the country’s steel production and according to Hebei Governor Zhang Qingwei, 60% of steel companies there “would be closed or merged by 2020”.
However, some of the shuttered mills in Hebei are resuming production, after being closed as part of the provincial government’s efforts to cut capacity.
“Some of the ‘overcapacity’ that was eliminated has found its way back after mills resumed production following a marginal recovery in steel prices during the first quarter of this year,” said an industry insider.
The country is the world’s largest producer of steel and contributes over half of the global production. It has already cut its steel output by about 90 million tons in the last few years and plans to reduce it by another 100 million to 150 million tons in the next five years. It has recently been accused of dumping its steel in other countries, and its steel exports have come under harsh scrutiny since Tata Steel’s decision to sell its UK operations.
Also, China announced at the UN headquarters on April 22 that it will finalise domestic legal procedures to ratify the Paris agreement on climate change before the G20 Hangzhou summit in September.
The announcement was made by Chinese Envoy Vice-Premier Zhang Gaoli during a high-level signing ceremony of the landmark pact at the UN headquarters, with a record 175 countries inking the international accord.
“The Chinese people honour our commitments. We will make early accession to the Paris agreement. China will finalise domestic legal procedures on its accession before the G20 Hangzhou summit in September this year,” Gaoli told a signing ceremony for the Paris deal at the United Nations.
Climate negotiators of 196 parties adopted the accord at climate change talks in Paris, France, on December 12, 2015.
The agreement can enter into force 30 days after at least 55 parties that account for at least 55% of global emissions ratify the pact through their national legislature.
The Paris pact, which sets a target of limiting global warming by 2100 to “well below” 2 degrees Celsius by curbing greenhouse gas emissions, will not be a fully legally binding treaty.
At the ceremony, Zhang said China will take effective actions at home to reduce greenhouse gas emissions, he said.
“We will launch a national emission trade market, substantially increase forest carbon sink. We will put in place a strict accountability system for environmental protection and ensure the implementation of all targets,” the presidential envoy said.
In its 13th Five-Year Plan, China pledged to cut carbon dioxide emissions per unit of GDP by 18% over the next five years, he said.
“We will control both the total energy consumption and carbon intensity,” Zhang said.
He also stressed the importance of international cooperation on the fight against climate change. “China will take an active part in the follow-up negotiations of the Paris Agreement.”
Meanwhile, new co-operation projects have been launched this year to help strengthen the climate financing capacity of other developing countries, he added.
China and the US together account for 38% of global emissions.