Opinion | China must avoid creating more problems with action on overcapacity
Hu Shuli says while industry consolidation is necessary, it has to be done through fair market competition, not administrative might
At the Central Economic Work Conference late last year, overcapacity was highlighted as a problem prioritised for action this year. So, just before the Lunar New Year, 12 ministries and state commissions jointly rolled out a plan to push for mergers in key industries including carmaking, steel, cement, shipbuilding, aluminium, rare earths, electronics, pharmaceuticals and industrialised agriculture.
Reports say as many as 19 sectors will eventually be affected, under plans that are still being finalised.
The worry about overproduction is twofold. One is the problem of waste, of course; the other is concern that the government may go overboard trying to tackle the excess capacity, thus hurting the economy even more. This worry is not unfounded.
Overcapacity has plagued the Chinese economy since the 1990s. Despite repeated government attempts to solve the problem, it has only got worse. One study concluded that the rate of utilisation of capacity last year was even lower than that in 2008, at about 70 per cent of pre-2007 levels.
In the past, the government has tried to curb excess capacity with administrative measures - such as by imposing market entry barriers, setting higher approval standards for projects and upgrading outdated production facilities - and the occasional financial policy.
By contrast, its latest plan stressed the use of market-based solutions while the government plays a guiding role. This is to be welcomed. But, by setting a target of 2015 for industrial consolidation, the government is raising fears that it may end up meddling in market operations to meet the deadline.