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China shuts factories in 19 industries as growth rate hits 20-year low

Asian stock markets struggled Friday when China moved ahead with long-term restructuring that’s slowing down its economy.

Associated Press

Asian stock markets struggled Friday when China moved ahead with long-term restructuring that’s slowing down its economy.

BEIJING — China's government has ordered companies to close factories in 19 industries where overproduction has led to price-cutting wars, affirming its determination to push ahead with a painful economic restructuring despite slowing growth.

The industry ministry issued orders late Thursday to more than 1,400 companies to cut excess capacity that has led to financial trouble for manufacturers. The affected industries include steel, cement, copper and glass. It requires some companies to close outright.

Communist leaders are trying to reduce reliance on investment and trade. But a slowdown that pushed China's economic growth to a two-decade low of 7.5 percent in the latest quarter prompted suggestions they might have to reverse course and stimulate the economy with more investment to reduce the threat of job losses and unrest.

"This detailed list shows the government is serious in its efforts to restructure the economy and is prepared to tolerate the necessary pain," Nomura economist Zhiwei Zhang said in a report.

An investment boom and government subsidies to industries such as solar panel manufacturing prompted producers to expand rapidly until supply exceeded demand. Companies have been forced to slash prices, often to below production cost.

The government's overall measure of prices charged by producers has fallen for the past 16 months, threatening a growing number with financial ruin. A major solar panel maker, Suntech, was forced into bankruptcy this year.

Forecasters have repeatedly trimmed their growth outlook for China amid a drumbeat of data showing weakening growth in retail sales, factory output and other economic segments.

The country's top economic official, Premier Li Keqiang, was quoted Tuesday by Chinese newspapers affirming the Communist Party's growth target of 7.5 percent this year. He said the "bottom line" for growth was 7 percent, prompting hopes among investors for at least a limited stimulus.

Thursday's order by the Ministry of Industry and Information Technology said it aims to eliminate "backward production capacity," indicating it also is meant to improve efficiency in energy and resource use.

Other industries targeted include coke, calcium carbide, aluminum, smelting of lead and zinc, paper, alcohol, monosodium glutamate, citric acid, leather, printing and dyeing, chemical fiber and batteries.

The production glut is in part a lingering cost of the multibillion-dollar stimulus that helped China rebound quickly from the 2008 global crisis.

Beijing pumped money into the economy with a wave of spending, much of it financed by state banks, on building new subways, bridges and other public works. Higher revenues for state-owned construction companies and suppliers of steel and other building materials propped up inefficient producers and encouraged some to expand.

China shuts factories in 19 industries as growth rate hits 20-year low 07/26/13 [Last modified: Friday, July 26, 2013 8:44pm]
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