4 May, 2017
China's state-owned enterprises (SOEs) plan to cut production capacity in sectors including steel and coal, government-run news agency Xinhua has reported.
Steel capacity will be reduced by 5.95 million tonnes and coal by 24.73 million tonnes, Xinhua said, citing an anonymous source.
Power company China Huaneng Group will cut 9.14 million tonnes of coal production capacity by the end of 2018 while dealing with 16 of the group's "zombie companies", Xinhua said. Zombie companies are economically unviable businesses that only survive due to financing from the government and banks.
China Poly Group has said it will close inefficient coal mines and reorganise 39 of its subordinate companies, the news site said.
Overall the country aims to cut steel production capacity by around 50 million tonnes and coal by at least 150 million tonnes this year, a key part of the country's supply-side reform, Xinhua said.
Last year, SOEs cut their steel production capacity by more than 10.19 million tonnes and coal capacity by over 34.97 million tonnes, Xinhua said.
China's SOEs cut 2,730 subsidiary legal entities and saved 4.91 billion yuan (£557 million) in management costs in 2016, making total profits of 1.23 trillion yuan, up 0.5% year on year, according to the State-owned Assets Supervision and Administration Commission (SASAC), Xinhua reported.
SASAC announced plans in February to reorganise China's SOEs to improve their operational efficiency and profitability.
SASAC is keen to reduce overcapacity, and deal with low commodity prices and financial losses through reorganisation and reforms to allow mixed ownership of the businesses, the Chinese state council said.
Ten of China's SOE's launched the country's largest private equity fund in September 2016 to finance SOE restructuring.
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Ian Laing, Partner, Pinsent Masons
ian.laing@pinsentmasons.com
