You are here

China steel cut plan risks 400,000 jobs, instability: Institute

China announced plans to cut steel production by as much as 150 million tonnes over the next five years, state media reported Thursday, as the country stares down industrial overcapacity that has weighed on its growth.

[BEIJING] China's plan to slash crude steel production capacity could eliminate 400,000 jobs and may fuel social instability, according to the state-run metals industry consultancy.

Steel production capacity will be cut by 100 million to 150 million tons, China's State Council announced Sunday without specifying a time frame. That will translate into as many as 400,000 lost jobs, said Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, according to a report by the official Xinhua News Agency Monday. China will raise funds to help dismissed workers, Xinhua said.

China's leaders have vowed to reduce excess industrial capacity and labour in state enterprises even as they battle the slowest growth in a quarter of a century. They are grappling with a delicate balancing act as they strive to restructure the economy away from investment-led growth without tipping it into a deeper slump.

"This is a positive sign for China's adjustment to a slower, more efficient, economy, but we should wait to see how many of these job cuts are real," said Andrew Collier, an independent China analyst and former president of the Bank of China International USA. "The high levels of debt in China would be better used to support real and growing businesses." Even more workers will be affected across related industries, Li said, according to Xinhua, and could potentially become a destabilizing force. "Large-scale redundancies in the steel sector could threaten social stability," Li was quoted as saying by the state-run agency.

China's steel producers have faced slumping steel prices and the industry lost an estimated US$12 billion in 2015, according to Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. The industry faces a long period of restructuring and consolidation with excess capacity of about 300 million tons, he said.

Coal production capacity also is to be cut on "a relatively large scale," according to the State Council statement Sunday.