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Local rewards key to reining in Chinese steel overcapacity

Keywords: Tags  China steel, local rewards, steel overcapacity, Zhang Dechen, Ministry of Industry and Information Technology

QINGDAO, China — China should tackle steel overcapacity by giving more incentives to local governments to rein in new capacity, a Ministry of Industry and Information Technology official says.

The government should also raise energy and other costs to discourage new projects, Zhang Dechen, head of the ministry’s raw materials department, said.

Steel overcapacity has become a serious problem in China, resulting in frequent bouts of overproduction that aren’t justified by steel prices.

Reducing the amount of outdated capacity should be one criteria used in evaluating the performance of local governments, Zhang said.

China should also raise the bar to entry to the sector by placing higher requirements on environmental protection, product quality, technology and energy consumption.

"Higher costs for electricity, resource taxes and emissions discharges would act as a market tool to squeeze some obsolete capacity out of the market," Zhang said.

Industry consolidation and development of high-technology steel products should be promoted, he added.

The industry has expanded partially due to local governments promoting local projects, as well as a huge number of projects being constructed without formal approval.

A version of this article was first published by AMM sister publication Steel First.

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