Chinese steel overcapacity is due to CNY 4 trillion stimuli

Tuesday, 20 Oct 2009

According to Mr Yao Jingyuan chief economist of National Bureau of Statistics, China steel overcapacity is the result of long term capacity accumulating instead of the offspring of the government CNY 4 trillion packages under the background of financial crisis.

Mr Yao said China steel capacity is piling up highly during 2003-2007 as for the strong demand before the financial turmoil. However, due to the easing down economy of both China and the world, the problem of overcapacity is highlighted when the crisis broke out.

Taking steel industry as an instance, China daily production of crude steel in this Aug reached 1.688 million tonnes while its yearly production totaled 0.66 billion tonnes taking up 40% of the total production of the world.

Hence, with the fall of steel demand at home and abroad, overcapacity is becoming worse and worse and steel price dropped later. But, Chinese government poured CNY 4 trillion to stimulate domestic demand and then the price revived again.

Nevertheless, it is good for China from another aspect as the obsolete capacity will be washed out under the present pressure.

(Sourced from MySteel.net)
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