20 February 2019
Authorities should pour more resources into a tougher pollution control program. Photo: Bloomberg
Authorities should pour more resources into a tougher pollution control program. Photo: Bloomberg

Hebei looks for a way out of overcapacity haze

It’s almost a knee-jerk reaction. Every time Beijing and Tianjin are blanketed in smog, officials and residents point their fingers at neighboring Hebei province.

Hebei cadres are not just sitting idly by. The province, an industrial powerhouse in northern China, has agreed to squeeze out excess capacity in the next few years, Xinhua reports. Specifically, by 2017, output will have been cut by 60 million tons of steel and cement, 40 million tons of coal and 30 million tons of plate glass.

Everyone assumes these sectors are mired in overcapacity, excessive inventory and deep losses, but the situation on the ground may just be the opposite.

After numerous field trips to the province since the start of the year, Zhao Youli {趙幼力}, a well-known financial commentator and chief industrial analyst at Industrial and Commercial Bank of China (01398.HK, 601398.CN), questioned this assumption in a recent report.

Roughly a decade ago when the nation’s steel production reached 300 million tons a year, or less than a third of the current level, the Ministry of Industry and Information Technology admonished steelmakers that they were launching too many projects.

Now think about this: if a steelmaker had listened to the government and refrained from adding production lines back then, it might have missed the once-in-a-decade market bonanza fuelled by spiking demand from the housing boom and the government-led stimulus projects in 2007-2012.

Many steelmakers in Hebei, especially medium-sized and privately owned ones, are doing better than policymakers think, Zhao notes in his report.  Their inventories are well within the normal range and orders from the auto and machinery sectors have helped cushion the impact of weaker mainstream demand. An overall industry overcapacity does not mean all players are stuck in the mud.

Plate-glass manufacturers are crying foul, too. Once Hebei implements fresh output curbs, the market price of plate glass will soar and competitors in other provinces will reap the profits.

In previous rounds, only old and redundant facilities were chosen to be demolished. But now that existing production lines are targeted under the government’s “one size fits all” policy approach, private companies will become more vulnerable to shutdowns or mergers than their state-owned peers.

It is estimated that Hebei may suffer a loss of at least 10 billion yuan (US$1.61 billion) in value-added industrial output and 1.6 billion yuan in taxes per year as a result of meeting the ambitious targets.  

In his recent inspection tour of the province, Chinese President Xi Jinping {習近平} called for a shift of focus from gross domestic product to industrial restructuring. With this in mind, Hebei officials may now have greater tolerance for slower economic growth.

Yet perhaps a more imminent threat is how to find new jobs for the many laid-off workers in the province, which Hebei Daily placed at 200,000. Analysts say given the current tepid economic climate and the Communist Party’s relentless emphasis on stability, the unemployment problem can inflict heavier costs than the lingering haze.

It is suggested that instead of focusing on overcapacity, provincial authorities should pour more resources into a tougher, more systematic emission and pollution control program.

Some experts believe Hebei can take a page out of Germany’s Ruhr region. It also has sizable clusters of heavy industries, but vigorous environmental monitoring and emission regulations have dramatically turned the place into a picturesque industrial cum residential district, where air and water pollution is largely a thing of the past.

– Contact the writer at [email protected]


EJ Insight writer

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