China clamps down on rogue steel mills

FT.com / Markets / Commodities: “China has launched a multi-pronged crackdown on unauthorised steel plants, in an attempt to counter the country’s steel boom and ease shortages of power, coal and transport capacity that threaten to hobble the wider economy, officials, academics and steel executives said.

But in some areas the crackdown appears to have degenerated into a game of cat-and-mouse, with local authorities disobeying their seniors in the central and provincial governments the moment their backs are turned.

In Tangshan, a city near Beijing where nearly 200 small steel plants have mushroomed over the past two years, about 10 steel plants were closed down by central government agencies late last month for being wasteful, polluting and unlicensed, officials said.

But one of those plants, Tangshan Fufeng Steel, had reopened. ‘We stopped production for a few days but we are back in business. What do you want to buy?’ an executive at Fufeng said by telephone yesterday.

The story was similar in Hubei, a central province inland from Shanghai. The Hubei provincial government checked 128 small steel plants and closed 97 of them earlier this year. But there are still about 200 in operation.

‘Because of local protectionism, the counties and towns just start up again after they have been closed,’ said one Hubei official.

The disobedience at local level of the orders from higher stations in China’s pyramidal bureaucracy is one of Beijing’s most pressing political problems. Macro-economic controls implemented in April were imposed partly to teach local governments a lesson after they ignored Beijing’s call for moderation in late 2003 and unleashed an investment frenzy in the first two months of the year.

This time, however, Beijing appears determined to alleviate the strain that the steel boom is placing on overburdened transport, electricity and coal industries. One tonne of steel, it is said, requires five tonnes of transport capacity – and China’s railway network can handle only 40 per cent of the demand for rail freight.

Steel output was forecast to rise this year to 260m tonnes, up from 222m tonnes in 2003, and could reach nearly 300m tonnes in 2005 unless the current development trajectory was checked, industry analysts said.

Some 152m tonnes per annum in capacity is under construction, according to the National Development and Reform Commission. But Beijing is determined to ensure that not all of this gets built.

Projects to be strictly banned include those without central government approval that are just starting construction as well as those with blast furnaces smaller than 300 sq meters in capacity, according to an NDRC directive.”

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