Hebei Province Governor Announces Plans to Cut 200 Million Tons of Steel Capacity by 2020

At the National People’s Congress, Hebei Province governor Zhang Qingwei announced he plans to cut just under 200 million of steel production capacity by 2020, or about 60% of current production capacity.

By the end of 2017, the province plans to close production capacity of 60 million tonnes of steel, 60 million tonnes of cement, 40 million tonnes of coal, and 36 million cases of plate glass.

Investment into Hebei’s steel sector contracted 5.7% in 2015.

Significance

In 2014, Hebei produced 185 million tonnes of crude steel and 239 million tonnes of rolled steel, 107 million tonnes of cement, and 158 million cases of plate glass. Those are equivalent to around 22% of national steel supply (down from 25% only 2 years prior), 4.3% of national cement supply, and 19% of national glass supply. If Hebei even partially implements its planned targets, it will be a major milestone in China’s efforts to reduce heavy industrial overcapacity.

While that ambition should improve longer term fundamentals, it will be a major drag on the province, where the broad coal mining, steel smelting and pressing, and non-metal minerals manufacturing (which includes glass and cement) account for 59% of industrial output.

In addition to policies to attract investment in new sectors, Hebei is likely to aggressively increase fiscal support for growth in ‘other services’ to balance the decline in industrial output before new industries can fill the vacuum. In this case, ‘other services’ are primarily government services such as unemployment payments and reeducation programs, which have seen a notable rise in some of China’s heavy industrial regions.