BEIJING: China will strictly control credit available for new capacity additions in the steel and coal sectors, both of which are suffering from price sapping supply gluts, the government said on Thursday.
Beijing will also boost state support for the export of steel and coal by encouraging firms to shift capacity abroad as part of its efforts to ease domestic overcapacity, according to a joint statement issued by the central bank and several other government bodies.
It was unclear whether the government planned to encourage greater exports of the two commodities directly from China.
The statement said China would "strengthen financing support for enterprises 'going out'", and use loans, export credits and project financing to encourage coal and steel enterprises to build capacity abroad.
"The details are in line with the government's overall guidelines," said Jiang Feitao, a steel researcher with the China Academy of Social Sciences.
"China's measures to boost the economy will definitely lift demand and this will be unfavourable for the overcapacity cut."
"I am also cautious about China's move to shift overcapacity overseas as this doesn't help, and just replaces exports," he added.
China has been blamed for flooding world markets with cheap steel, putting overseas producers at risk of closure, though analysts say cost disadvantages make a large surge in coal exports highly unlikely this year.
China is planning to shed 100-150 million tonnes of crude steel capacity in the next five years, and a further 500 million tonnes of surplus coal production, in a bid to tackle huge capacity overhangs that have saddled domestic firms with persistent losses.
Local governments have been reluctant to force through bankruptcies at so-called zombie coal and steel enterprises amid fears of rising unemployment and a surge in non-performing loans.
The government has earmarked 100 billion yuan ($15.45 billion) to handle layoffs, and it is also promising to establish mechanisms to deal with mounting debt.
The government said in Thursday's statement that it would speed up the handling of non-performing loans in the debt-ridden sectors, and extend direct financing to support their restructuring. It would also would work to deal with possible default risks in the two sectors as soon as possible.
It said banks would use a wide range of methods,
including debt restructuring and bankruptcy settlements, to handle the problem, and it would also develop pilot projects aimed at securitising non-performing loans.
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