***SPOTLIGHT: Beijing’s blacklist — getting tough on overcapacity?

China has taken what appears to be a harder line in its drive to force older smelters and furnaces out of the market: blacklisting, and sanctions.

China has taken what appears to be a harder line in its drive to force older smelters and furnaces out of the market: blacklisting, and sanctions.

More than 2,000 companies – including subsidiaries of some major names like Hebei iron & Steel and Aluminium Corp of China – have been told to stop operating some facilities by the end of September, or they could face severe restrictions on the rest of their business.

The ministry of industry and information technology, which now takes a leading role in industrial restructuring, published the name of all 2,087 companies on its website. The fact that the firms have been named certainly gives the impression that the ministry’s resolve has stiffened.

And this message is underlined by the planned punishments against those who ignore the list. Failure to comply means companies won’t get access to bank loans, won’t get new projects approved, and could have their business licence cancelled or their power cut off.

“I think Beijing is serious this time,” said a source at a steel mill in Hebei province. “The list of firms requested [to shut down capacity] show’s the government’s determination.”

The list covers companies in the steel, alloys, coke, and base metals sectors: all of which have been targets of government campaigns against overcapacity.

It is certainly the first time the government has been so specific in public about its targets, and the specific punishments have never been stated so clearly before.

But this announcement may not be everything it seems.

For a start, it turns out some of the items on the list are already out of operation, making the Miit’s announcement look much more like an exercise in PR than a radical policy shift.

“I don’t think the list has a big influence in regard to reducing market supply, as far as I know, these outdated facilities may have been closed by mills previously,” said one analyst in Beijing. “What they reported to the government are outdated facilities that they have already closed. They do this in order to help the local government to fulfil a political task.”

Resistance from local governments has often been cited as a factor in the relative lack of success in previous efforts to trim overcapacity.

Other companies also said the list was nothing new; the ministry’s announcement simply makes it public, perhaps to add some additional encouragement.

“We find the named capacity at our mill was already ordered to be closed down and that work is already going on. So the list from the ministry just confirmed and repeated a previous plan,” he said.

Beijing has been trying for a long time to phase out overcapacity in energy-intensive industries, both to reduce pollution and to reduce overcapacity. This was done previously by trying to shut down companies below a certain size. That didn’t work because the firms just expanded so they were comfortably above the limit.

The latest rules, applied to the companies on the Miit’s list, seek to shut down facilities below a specific size or capacity. It must be remembered that the pace of expansion in some sector significantly outweighs any restrictions on older capacity.

But production could gradually become more dominated by bigger companies, which across all of the affected industries, is a key goal.

“It will not have an immediate or direct influence over the market, like tight supply suddenly,” said an official at a copper smelter in Shandong province. “But bigger smelter [companies] will benefit from this, if the country keeps cancelling out the older capacity and raising entry standards.”

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