Solution to China’s industrial overcapacity setting up more factories overseas, says official

China’s industrial overcapacity problems remain severe and the only way to solve them is by shifting production facilities abroad where demand still has the potential to grow, an official at the industry ministry said on Wednesday.

A decade of rapid industrial expansion has saddled China with price-sapping supply gluts in sectors such as coal, glassmaking, cement, aluminium and steel, but despite several policy initiatives, the government has struggled to force outdated and loss-making plants to restructure or shut down.

"The only route is to speed up going overseas for high-grade production capacity," Huang Libin, an official with the Ministry of Industry and Information Technology, told a briefing.

He said China’s efforts to boost economic cooperation along the old “Silk Road” route, known as the “One Road One Belt” plan, would provide opportunities for domestic industries to shift production abroad.

“For us there is overcapacity, but for the countries along the ‘One Road One Belt’ route, or for other BRIC nations, they don’t have enough and if we shift it out, it will be a win-win situation,” he said.

Huang said tackling overcapacity would be one of the key tasks of China’s next Five-Year Plan covering from 2016-2020.

He noted that profits in the coal, cement and glassmaking sectors had fallen more than 60 per cent in the first five months of this year and the metallurgical sector saw profits dip 36 per cent.

The steel sector is estimated to have about 300 million tonnes of excess annual production capacity nationwide. Hebei province alone plans to shed 86 million tonnes of outdated production capacity by 2020.

Hebei is also planning to shift at least five million tonnes of crude steel capacity overseas by 2017 and its biggest producer, the Hebei Iron and Steel Group, has already signed an agreement to move some of its plants to South Africa.

Record steel exports provided a lifeline for Chinese mills last year after domestic consumption fell 3.4 per cent, the first annual drop in three decades, but industry officials have warned that exporters face growing risks of anti-dumping charges this year.