Caixin
Jan 23, 2017 06:36 PM
ECONOMY

China to Include Autos, New Energy, Graphene Into Overcapacity Cuts

(Beijing) — More industries are likely to be included in China’s drive to cut excess capacity, which so far has focused on steel and coal, a report said Monday, as President Xi Jinping vowed to “reduce low-end and inefficient supply.”

The government may broaden targeted groups to include autos, new energy and graphene — used in making of electric circuits, solar batteries and display screens — said the Economic Information Daily, citing unnamed sources. The newspaper, owned by the official Xinhua News Agency, did not elaborate.

During Sunday’s meeting of the Communist Party’s Politburo, Xi called for supply-side reforms to be deepened this year, urging the structure of supplies to be improved to “better adapt to changes in demand,” according to Xinhua.

The government will “reduce low-end and inefficient supply” while “expanding effective and medium- and high-end supply,” Xinhua quoted Xi as saying.

China’s car market, the world’s largest, appears to be saturated, with sales posting single-digit growth in four of the past six years.

The annual increase in auto sales recovered to 13.65% in 2016 from 4.68% in the previous year, mainly due to government stimuli introduced in October 2015 to halve the sales tax on cars with small engines. But the sales gains were still far slower than an expansion of 32.37% in 2010 and 46.15% in 2009, according to data from the industry group China Association of Automobile Manufacturers.

The National Development and Reform Commission, China’s top economic-planning body, said in May that “structural overcapacity in the auto industry has emerged.” It added that investment in commercial car production “should not be increased blindly” and “low-level, repetitive” investment in power-battery manufacturing must be “prevented.”

Concerns about a renewable energy “glut” are also growing as China has been promoting the industry as part of efforts to achieve its goal to increase the consumption of nonfossil fuels to 15% of the overall energy mix by 2020, up from 8.6% in 2010.

Much of the electricity generated from wind and solar power did not get distributed through the country’s grid for a variety of reasons, including mismatches of locations of wind farms. Many of the farms are in western and northern China, while demand centers are concentrated in the east along the coast.

The country has been the largest market of wind power since 2009, with installed capacity topping 145 gigawatts at the end of 2015, or a third of the world’s total, according to the Global Wind Energy Council.

In 2015 China wasted about 34 billion kilowatt-hours of wind-power-generated electricity, 2.7 times that recorded a year earlier, according to data from the National Energy Administration (NEA).

NEA Chief Engineer Han Shui said in November that “the scale and pace” of development in areas where wind and solar power were being wasted should be “appropriately brought down.”

The Economic Information Daily also reported that many local governments have recently announced their excess-capacity cut plans for this year.

For example, Hebei province, whose billowing steel mills have been partly blamed for choking smog in Beijing and other areas, aims to trim the capacity of steel by 15.6 million tons, iron by 16.2 million tons, coal by 7.4 million tons, cement by 1.1 million tons, and flat glass by 5 million weight cases, it said.

It also promised to close down all steel plants in Langfang and Baoding, which border Beijing, and Zhangjiakou, which will co-host the Winter Olympics with the national capital in 2022, the report said.

In February 2016, China set a goal to get rid of up to 150 million tons of steel capacity by 2020 and reduce 500 million tons in coal capacity within the next three to five years in an effort to close down “zombie companies” and improve the efficiency of state-owned enterprises.

Officials have said that 2016’s target of eliminating 45 million tons in steel capacity and 250 million tons in coal capacity were achieved ahead of schedule.

Contact reporter Fran Wang (fangwang@caixin.com)

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