China to Ease Domestic Steel and Coal Overcapacity

As part of efforts to ease domestic steel and coal overcapacity, widely blamed for triggering a global industry crisis, China said it will do more to help its firms shift capacity overseas while keeping tight control on adding new capacity at home.

A joint statement issued by the central bank and several other government bodies on Thursday said China would “strengthen financing support for enterprises ‘going out'”, and use loans, export credits and project financing to encourage coal and steel businesses to build capacity abroad.

At the same time, it would strictly control credit available for new capacity additions in China.

It was unclear whether this signals government encouragement for more coal and steel exports from China, which has been widely blamed for dumping its excess steel on world markets, depressing prices and threatening thousands of jobs. Beijing says it has done what it can on overcapacity, and the criticism is “lazy protectionism.”

Earlier this week, China and other major steel producers failed to agree on measures to tackle the overcapacity crisis, prompting the United States, European Union and others to call for urgent action.

“I am cautious about China’s move to shift overcapacity overseas as this doesn’t help, and just replaces exports,” said Jiang Feitao, a steel researcher with the China Academy of Social Sciences.

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 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