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China to cut excess steel, coal production as part of restructuring

Steel and coal have the largest inventories in China, to address this no new projects will be approved, outdated production facilities are being shut down, and "zombie" companies are being forced to shut, the state media said.

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Steel and coal have the largest inventories in China, to address this no new projects will be approved, outdated production facilities are being shut down, and "zombie" companies are being forced to shut, the state media said.
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China, the world's biggest steel and coal producer, will cut excess capacity by a whopping 100 to 150 million tonnes in the two key sectors as part of the painful restructuring of the world's second largest economy.

"China will cut crude steel production capacity by 100 to 150 million tonnes," according to an official statement by the Chinese Cabinet chaired by Premier Li Keqiang. During the meeting, Li underlined the urgency and the government's resolve to cut excess capacity in steel and coal industries, as the country strives to restructure its economy which saw its lowest growth in 25 years at 6.9% last year.

The State Council did not specify the deadline for such cut, but pointed out that China has cut its production capacity of crude steel by more than 90 million tonnes in recent years, state-run Xinhua news agency reported on Monday.

China will reduce the production capacity of coal by "a relatively large margin," according to the statement. China is the world's largest producer and consumer of coal.

"Digesting overcapacity in steel and coal sectors is an important measure to promote the supply-side structural reforms," the statement said, adding that the process will deliver the industries out of trouble and achieve upgrading.

China's production of crude steel fell 2.3% to 804 million tonnes in 2015, the first time the industry reported negative growth in 34 years. Any newly-added capacity in crude steel and coal industries will be "strictly controlled," the statement said.

The government should be fully aware of the importance and challenges in digesting excess capacity, the statement said, adding that the government will introduce necessary measures to help the laid-off workers cope with difficulties and find new employment.

Steel and coal have the largest inventories in China, to address this no new projects will be approved, outdated production facilities are being shut down, and "zombie" companies are being forced to shut, the state media said.

Some 1.8 million employees in the coal sector will be relocated while 360 million tonnes of outdated production capacity will be removed. Earlier this month, state-owned Baoshan Iron and Steel Co. (Baosteel), China's largest listed steel maker, saw a 83-% plunge in its 2015 net profit.

Baosteel attributed the plunge to sluggish demand, steel price declines -- which outpaced a fall in the price of raw materials -- and expanding foreign exchange losses. The company's net profit reached 961 million yuan (about 144 million US dollars) in 2015, down 83.4% from one year earlier, it said. Business revenue decreased 12.6% year on year to 164.1 billion yuan.

The restructuring is a by-product of efforts to steer the Chinese economy away from a manufacturing and credit-fueled growth model to one based more on innovation, the service sector and consumer spending, officials said. 

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