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China’s Directive on Steel and Coal Capacity Cuts Worries Local Officials

Workers walk across steel beams on a construction site in Beijing on December 18, 2014. GREG BAKER/ AFP/ Getty Images

China should quicken capacity cuts in its bloated steel and coal sectors, the country’s top economic planning agency said on Tuesday, putting pressure on local officials to meet annual targets despite some worries the steps could hurt economic growth.

China has promised to slash steel capacity by 45 million tonnes and coal capacity by 250 million tonnes this year, as it tries to rejuvenate two industries suffering from slowing demand and a massive supply glut.

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But steel capacity cuts in the first seven months of the year amounted to just 47% of the annual target, while coal capacity reductions accounted for 38% of the goal, said Zhao Chenxin of the National Development and Reform Commission (NDRC).

“The pace should be further accelerated across the country and the progress in various regions is uneven,” Zhao told a news conference.

Some local officials are worried that capacity cuts could hurt economic growth and lead to job losses, while rising prices for the commodities have weakened the resolve of local governments to accelerate the cuts, he said.

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China has come under fire from trading partners accusing it of dumping its excess industrial capacity in global markets. Some officials in the U.S. and Europe have blamed a glut of Chinese steel in overseas markets for pulling prices down and causing widespread unemployment.

Zhao said government officials have been instructed to overcome the difficulties in meeting this year’s targets on capacity cuts, issuing warnings to “severely deal with” illegal industrial projects.

Government departments will issue detailed rules on debt financing for firms with steel and coal capacity, he said.