China Publishes New Plan To Deal With Overcapacity

China will tackle chronic overcapacity problems in sectors such as steel and cement by blocking approvals for new projects and by making better use of the market, according to a new plan issued by the State Council on Tuesday.

Margins in the targeted sectors, which also include shipbuilding, aluminium and glassmaking, have been affected for years by a capacity glut that has left many firms suffering heavy losses and reliant on government subsidy.

The long-awaited plan, published by China’s cabinet, said it would focus on “establishing and perfecting” market mechanisms, marking a change of approach after years spent trying to strong-arm the sectors into submission.

It would also set higher environmental and quality standards for industries and encourage the private sector to play a role in restructuring oversized firms.

As well as blocking new approvals, the new plan will seek to absorb overcapacity by stimulating domestic demand, and will also offer tax incentives to encourage firms to relocate plants overseas.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza