China

CN-8:Guiding Statement on Overcapacity

Policy Description

In October 2013, China’s State Council issued a guiding statement on how to resolve China’s overcapacity in a number of industries, including iron and steel, cement, electrolytic aluminum, flat glass, and shipbuilding. Issued to provincial governments and central government ministries, the Statement outlined that resolving overcapacity is a key priority for adjusting China’s industrial structure at present and in the future. The goal is that, within five years: 1) the scale and utilization rate of these industries should reach reasonable levels; 2) the quality of industrial development should be improved in the aspects of cleaner production, pollution treatment, increasing economic benefits, and strengthening industry competitiveness; and 3) a long-term mechanism should be established to prevent overcapacity as well as monitor progress. To achieve these goals, the guiding statement developed tasks and policies for provincial and local governments, such as prohibiting the approval of new capacity projects, cleaning up illegal capacity (i.e., capacity that does not have proper permits, or fail to meet government regulations and standards (ranging from land use, environmental protection, industry adjustment catalogues, to energy efficiency/environmental protection standards), and phasing out obsolete production capacity. 

Description

In October 2013, China’s State Council issued a guiding statement on how to resolve China’s overcapacity in a number of industries, including iron and steel, cement, electrolytic aluminum, flat glass, and shipbuilding. Issued to provincial governments and central government ministries, the Statement outlined that resolving overcapacity is a key priority for adjusting China’s industrial structure at present and in the future. The goal is that, within five years: 1) the scale and utilization rate of these industries should reach reasonable levels; 2) the quality of industrial development should be improved in the aspects of cleaner production, pollution treatment, increasing economic benefits, and strengthening industry competitiveness; and 3) a long-term mechanism should be established to prevent overcapacity as well as monitor progress.

To achieve these goals, the Statement prohibits government agencies from:

  • approving or registering any projects that add new capacity,
  • providing services or support in land use and supply,
  • approving energy-efficiency assessments or environmental protection assessments,
  • supporting in bank credits for projects.

For projects that are under construction, the opinion requires local governments to conduct a comprehensive clean up. If projects do not meet industrial development requirements and/or environmental protection requirements, these projects should be stopped in construction. If projects meet these requirements, based on the principle of regional planning and considering environmental burdens, local governments should submit application reports to the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT) for further approval. For projects that violate these rules, once verified, punitive measures should be taken, such as to stop providing loans and conducting investigations on government staff responsible for project oversight.

The Statement encourages local governments to exceed the national targets on phasing out obsolete capacity (CN-5). The goal is to phase out an additional 15 million tonnes (Mt) of iron-making capacity, 15 Mt of steel-making capacity, 100 Mt of cement-making (clinker and cement grinding) capacity, and 20 million weight cases of flat glass capacity in 2015. To facilitate the phase-out, the Statement suggests that industries need to strictly adhere to the mandatory Maximum Energy Performance Standards (CN-4) and implement differential pricing for electricity  (CN-8) and water for companies that do not meet energy and environmental standards. The guiding statement also calls for “capacity exchange” in equivalent amount or reduced amount (等量或减量产能置换方案). This means that in order for a new project to be built, an equivalent amount of capacity needs to be phased out. For key regions, i.e., Beijing-Tianjin-Hebei, Yangtze River Delta, and Pearl River Delta regions, the phased out capacity in these regions needs to be higher than the newly added capacity in other provinces/cities. The Statement encourages local governments to guide this exchange process with voluntary company participation.

In addition, the Statement also developed other tasks to achieve the goals, including cleaning up illegal capacity, adjusting industrial structure, exploring and improving domestic market demand, expanding international markets, strengthening innovation, and establishing a long-term mechanism, including innovative government management, creating a “fair play” market environment, improving market mechanisms (such as promoting resource tax reform and legislation on environmental taxes).

The Statement pointed to a number of existing policies that can be improved and used to achieve the goals, including improving management of industries with overcapacity, strengthening environmental protection regulation, improving regulation on land use, implementing effective financing policies, improving and regulate pricing polies and fiscal incentives, implementing policies on employee reallocation, and strengthening supervision and inspection. The statement also pointed to a new policy measure, i.e., establishing project information database. This includes establishing a national information database on investment projects, especially for the industries face the overcapacity challenge. 

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Administrative

Position in the Pyramid

About Us

Participation: Mandatory

Period

Start Date: 2013

End Date: 2018

Policy Linkages

Supports Energy and Carbon Intensity Targets of the 12th Five Year Plan Effort Defining
Supports Small Plant Closures and Phasing Out of Outdated Capacity Effort Defining
Supported By Industrial Energy Performance Standards Effort Defining
Supported By
Supported By Financial Rewards for Energy-Saving Technical Retrofits Supporting Measure
Supported By Differential Electricity Pricing for Industry Supporting Measure
Supported By EE Financing Regulations and Instruments Supporting Measure

Agencies Responsible

State Council
National Development and Reform Commission
Ministry of Industry and Information Technology

Primary Objective: Energy

Objective

The objective is that, within five years (2013-2018): 1) the scale and utilization rate of targeted industries should reach reasonable levels; 2) the quality of industrial development should be improved, in terms of cleaner production, pollution treatment, increasing economic benefits, and strengthening industry competitiveness; and 3) a long-term mechanism should be established to prevent overcapacity and monitor the progress.

Target Group

• Provincial and local governments • Iron and steel sector • Cement sector • Electrolytic aluminum • Flat glass industry • Shipbuilding industry

Driver of energy consumption or emissions affected by policy: Total energy use; total emissions; specific energy consumption

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

see Target Group

Quantitative Target? yes

Target: Phase out 15 million tonnes (Mt) of iron-making capacity, 15 Mt of steel-making capacity, 100 Mt of cement-making (clinker and cement grinding) capacity, and 20 million weight cases of flat glass capacity in 2015.

Time Period: 2014-2015

Progress Monitored? yes

Monitoring Done By

Organisation Type Organisation Name
Government Agency State Council
Government Agency Provinial authority or municipality (*3)

Verification Required? no

Verification Done By

Organisation Type Organisation Name
Government Agency Provinial authority or municipality (*3)

Enforced? yes

Requirements on the Target Group

see full description 

Support by Government

  • Capacity exchange among provinces/cities
  • Industry regulations on industries with overcapacity
  • Environmental protection regulations and standards
  • Land use management and regulations
  • Effective and strengthened financing policies
  • Differential pricing and fiscal incentives
  • Employment reallocation policies
  • Information disclosure on projects in industries with overcapacity
  • Supervision and inspection 

Implementation Toolbox

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions
Estimated costs/benefits for industry
Estimated cost for government

References & Footnotes

References

[1] State Council, 2013. “Guiding opinion on overcapacity” (国务院关于化解产能严重过剩矛盾的指导意见), October 6. http://www.gov.cn/zwgk/2013-10/15/content_2507143.htm