Xu Lejiang: China's steel industry needs to eliminate capacity

Recently, Xu Lejiang, president of the China Iron and Steel Association, gave an in-depth explanation of the current overcapacity issues at the six executive members (expansion) meeting of the Fourth Session of the China Iron and Steel Association.

Xu Lejiang: To clarify some understandings, not to demonize the overcapacity problem of steel Xu Lejiang said that overcapacity is a universal problem faced by China's manufacturing industry including steel. The steel industry is particularly typical, and is considered to be the current culprit in the industry's troubles. . I personally feel that it is necessary to clarify some understandings and viewpoints and not to demonize the problem of overcapacity in the steel industry. This is good for us to do a good job in the future.

Xu Lejiang said that there are special reasons for the excess capacity of Chinese steel. Overcapacity is an inevitable stage of the development of an industry and an inevitable result of industrial development. For the Chinese steel industry, the following factors have intensified the contradiction of overcapacity -

The first is the expansion of production capacity under the view of GDP performance. The industry characteristics of steel have determined that the industry's contribution to GDP is very high. All localities compete for steel as a pillar industry. In general, iron and steel enterprises are the largest industrial enterprises in the region, not only contributing to the huge amount of local GDP, but also contributing a large amount of tax revenue to the sea. In addition, they can also solve employment pressure. Therefore, there is a strong desire to make the steel industry bigger and stronger everywhere.

Second, the one-sided pursuit of scale competition has led to a growing number of steel companies. Due to the lack of market-based mergers and acquisitions by Chinese steel companies, many small-scale steel companies have resisted being self-proclaimed by mergers and acquisitions. Therefore, the birth of China's large steel mills mainly relied not on the absorption of the country’s stock of steel production capacity but on the growth As a result of the production capacity, Chinese steel production capacity rapidly expands with the size of Chinese steel companies.

The third is that China's indirect system has caused small and medium-sized steel companies to blindly “enclosure”. The larger the scale of the enterprise, the greater the ability of the company to cope with the indirect ** system dominated by large and medium-sized banks, and the more it will be able to remain invincible in all-round competition. Therefore, for small and medium-sized iron and steel enterprises, expanding the scale is a helpless means of their survival. This is one reason why a large number of small and medium-sized private steel companies have expanded rapidly in recent years.

In addition, the sophisticated and efficient design and construction of steel plants has created conditions for the birth of a large number of steel mills. At present, most of China's metallurgical equipment is domestically produced. The rapid advancement of China's metallurgical construction technology has made investment in a modern steel plant no longer a complicated and vast project. Not only has its investment cost been greatly reduced, but its construction period has also been greatly shortened. The actual entry threshold for the steel industry is greatly reduced.

Xu Lejiang: It is necessary to look at the overcapacity dialectically and not to exaggerate the dangers. Xu Lejiang stressed that do not over-exaggerate the danger of overcapacity. The evolution of overcapacity in China's steel industry today is basically similar to that of old steel giants in the west. The difference is that because of the large size of the Chinese steel industry, the excessive excess capacity caused by the same overcapacity rate has magnified the harmfulness.

Xu Lejiang further pointed out that we must dialectically view the issue of excess capacity, we must not only see the negative impact of this phenomenon on the development of the industry, abandon the demonization tendency, we must also see the positive significance of this phenomenon -

First of all, overcapacity is a sign that the industry is moving towards maturity. The life cycle of each industry is similar. In general, there are four periods of start-up, growth, maturity, and recession. It is just that the period of time experienced by different industries is different. However, a common law in mature period is excess production capacity. It is also a sign of the maturity of an industry. The overcapacity in China's steel industry after entering mature stage will be a normal state, and the industry will enter into a recession period. Therefore, to adapt to this situation, we can only ease this excess situation and must not eliminate this phenomenon.

Second, moderate excess production capacity is conducive to full competition in the industry. One of the reasons for excess capacity is that the supply growth rate is faster than the demand growth rate, or the supply has not increased but the demand has declined. This shows that capital entering the industry is free, competition is sufficient, and it is beneficial to the demand side. The transformation and upgrading of China's steel industry must take place in the context of "overcapacity." Of course, serious overcapacity will inevitably lead to vicious competition, we need full competition and avoid vicious competition, so we must eliminate serious excess capacity.

Third, we cannot equate excess production with excess capacity. Some people say that China's steel industry has entered a period of full overcapacity. Not only has the backward low-end production capacity become over-abundant, but also high-end products such as oriented silicon steel and high-strength automotive panels have experienced excess capacity. There is no doubt about the overcapacity of the steel industry as a whole, but it cannot be assumed that the production capacity of all varieties of China's steel is excessive, which confuses the different concepts of overcapacity and overcapacity and can easily mislead the government’s macroeconomic control policies. Overcapacity is a phenomenon of oversupply for a long period of time in an industry, accompanied by the fact that the industry has always been from maturity to recession. The overproduction is a phased phenomenon because short-term supply exceeds demand due to sudden suppression of demand. The phenomenon that China's iron and steel industry has emerged in the high-speed growth period has been excess production rather than overcapacity. With the recovery of demand growth, the problem of oversupply disappears naturally. The so-called high-end overcapacity currently occurring in the Chinese steel industry is actually a short-term excess of output. With the transformation and upgrading of China's economic structure, the demand structure of steel will also be upgraded. The current high-end excess capacity is only an illusion, and it is a structural transformation of China's economy. The inevitable phenomenon that the development cycle of steel and downstream industries is not synchronized in the process of industrial upgrading.

Xu Lejiang: Learn from the spirit of self-discipline in Europe, the United States and Japan to learn from the spirit of self-discipline most worth learning Xu Lejiang said that Japan, Europe and the United States have a relatively long history of development of the steel industry, have faced the industry development problems of excess capacity, the steel industry to increase capacity They have also experienced a long-term process of exploration. However, due to the differences in the institutional foundations and industry conditions of different countries, the basic ideas for their governance and the policies and measures taken vary.

Xu Lejiang said that despite the great changes in the development model and market conditions of the Chinese steel industry, the steel industries in Europe, the United States, and Japan that emerged from severe excess capacity may give us some inspiration and lessons worth learning. The most worthwhile place for our Chinese counterparts to learn is the spirit of corporate self-discipline. Chinese companies are just like the Chinese people's impression of the world. They are chaotic and scrambling. They are doing poorly in self-discipline in cutting production and productivity. The result is "a lot of success. hurt".

Xu Lejiang: It is expected that the production capacity of the Chinese steel industry will have a serious surplus at the end of the “Thirteenth Five-Year Plan” Xu Lejiang. Western, Western and other developed countries all have an extreme period of steel production capacity utilization below 60%. This period is generally After the turning point in domestic steel demand growth, steel output peaked. While China's current steel demand has declined significantly, it has not yet experienced negative growth, and the peak output has not yet arrived. China's inflection point and peak value have not yet been reached. It is expected to arrive at the end of the “Thirteenth Five-Year Plan” period.

Xu Lejiang called on the whole industry to be alert and start planning now to avoid the occurrence of such extremely serious excesses as much as possible. At the same time, we must also make the worst plan. We must have psychological preparations for industry capacity utilization below 60%.

Xu Lejiang: The iron and steel industry has not yet reached the lowest stage. If it does not reduce production, it will be hard to get better. Xu Lejiang believes that due to the industry’s oversupply, high raw material prices, and the influence of financial capital on the value distribution of the steel industry, steel has been in a relatively long period of time. The industry will be in a meager operating state, and even have annual losses.

Xu Lejiang further emphasized that if environmental supervision is not strengthened, backward production capacity is eliminated, exports of low value-added steel products are reduced, demand for imported iron ore is reduced, excess output is properly reduced, industrial organization structure is significantly improved, and business conditions are improved. It is impossible to achieve.

Xu Lejiang: It is necessary to abandon administrative measures to liberalize the approval of the steel industry. Xu Lejiang believes that overcapacity is an industry issue. The power of a single company cannot be resolved. I think that in the past, the excessive growth of China's steel production capacity has a considerable amount of administrative factors blended into it. Therefore, the Chinese steel industry must eliminate administrative measures and take marketization as its principle.

Xu Lejiang's point of view - to liberalize the new government approval limits for the access of the steel industry. Some people will certainly say that since the production capacity is already in surplus, then the restrictions on administrative approval for industrial access are not more capital flowing into the steel industry. If so? I think that capital is rational, and the restriction of industry access has caused artificial “scarcity” illusions. A large number of private capital will think in the opposite direction and resort to any means to illegally enter this industry. In reality, the power of administrative examination and approval seeks rent. Slow and inefficient greatly reduces the efficiency of compliance capital entering the steel industry. Therefore, once the restrictions on industry access are released, investors will be more cautious and capital efficiency will be greatly improved.

Xu Lejiang: Establishing and perfecting the trading platform for the exit of steel capital Xu Lejiang believes that the free entry of capital must have a free exit platform for capital. Solving the problem of excess capacity also requires a trading platform mechanism with free withdrawal of industrial capital.

Xu Lejiang pointed out that the state-owned capital of China's iron and steel industry currently occupies half of the country, and many state-owned steel companies are big monsters and monsters. The capital's liquidity is poor, and there are many policy restrictions. China's capital market is currently imperfect. The long-term downturn in the securities market has caused the turnover rate of steel stocks to be very low. It is urgent to establish a third-party platform suitable for large-scale transactions to trade steel property rights to facilitate the withdrawal of steel capital from the steel industry.

Xu Lejiang: The government must formulate strict "rules of the game" and act according to the rules. Xu Lejiang believes that allowing capital to enter the iron and steel industry freely does not mean that there is no entry step. The government's responsibility is to establish strict access standards. Newly-built enterprises must have strict standards for energy consumption, emissions, quality, etc., and the deadline for the production of new capacity must meet the new standards.

Xu Lejiang stressed that through strict environmental protection supervision, the steel industry is promoted to accelerate structural adjustment and upgrade. We must make full use of the existing laws and regulations to severely infringe the laws and regulations concerning the existence of enterprises that have violating product quality, strictly penalize the law, and resolutely crack down on counterfeit and inferior steel production. Lax enforcement or selective enforcement is currently the biggest obstacle to the elimination of backwardness.