Economic Transformation through Industrial Restructuring

By+staff+reporter+LI+YUAN

ON the morning of November 24， 2013， the Hebei provincial government took action to demolish 10 shaft furnaces and 16 converters at eight steel and iron plants in Tangshan， Handan and Chengde， reducing the overcapacity of iron production by 4.56 million tons and steel production by 6.8 million tons. Prior to this， by the end of October 2013， the province had cut down on steel and iron overcapacity by 2.38 million tons.

Steel and iron has long been a pillar industry for the Chinese economy； however， it has become common practice to cut down overcapacity of the industry. The government work report released at the First Session of the 12th National Peoples Congress explicitly stated that efforts should be made to promote the transformation of the nations economic growth mode and accelerate industrial restructuring. Structural adjustment to the steel and iron industry now epitomizes Chinas wider economic transformation.

Upgrading Chinese Economy

Since reform and opening-up， Chinas GDP has seen an average annual growth of 9.8 percent， with the economic aggregate expanding more than 24-fold. In the past six years， China has contributed as much as 33 percent to the worlds economic growth， creating a “China miracle”that continues to astound the world.

Alongside the stable and relatively fast development of Chinas economy， its ranking in world economy has continued to climb； however， problems entailed in the imbalance， incoordination and unsustainability of its economic develop-ment have become increasingly obvious. The outbreak of the global financial crisis made the central authorities aware that continuing along an economic growth path that relied on external demand， lacked innovation and featured high input and low output was no longer an option. The need for China to transform its economic growth mode has become more pressing.

Robert Lawrence Kuhn， China expert and author of how Chinas Leaders Think： The Inside Story of Chinas 30-Year Reform and what It Means for the Future of the world， maintains that China has no choice but to transform its economic growth mode， as it is the only way for the country to sustain economic development， improve peoples livelihood， achieve trade balance， save energy and protect the environment.

Chinas 12th five-year plan （2011-2015） on national economic and social development， approved at the Fifth Plenary Session of the 17th CPC Central Committee， explicitly states that fast-tracking transformation of the nations economic growth pattern is a main channel for Chinas development in the coming five years. The core of economic growth pattern transformation lies in three aspects： Firstly， demand structure. Economic growth should depend on consumption， investment and export rather than just on investment and export. Secondly， industrial structure. Economic growth should be boosted by the coordinated development of primary， secondary and tertiary industries rather than mainly by secondary industry. Finally， input of multiple factors. Economic growth should depend on scientific advancement， high quality labor and innovated management rather than mainly on consumption of material resources.

When he assumed office in 2013， Chinese Premier Li Keqiang emphasized that the Chinese government would strive to promote sustained economic growth.“There are many problems facing China because it is such a large country， but the priority is still sustaining economic development. If we want to achieve the goal set for 2020， we must realize an estimated average annual growth of 7.5 percent. That will not be easy. But we have the advantage of strong domestic demand. So the key is to promote transformation of our economic growth pattern and form a new driving force with the combination of dividends of reform， the potential of domestic demand and innovative activities to build an upgraded Chinese economy，”said Premier Li.

Against the backdrop of the global economic recession， the world is seeking to glean more opportunities from the development of the worlds second largest economy – China. French Ambassador to China Sylvie Bermann said that the measures adopted by the Chinese government meet the needs of a world in plight.The upgraded Chinese economy is of great significance to the worlds interests， Bermann said.

Eliminating Overcapacity

The Decision on Major Issues Concerning Comprehensively Deepening Reforms that was approved at the Third Plenary Session of the 18th CPC Central Committee explicitly states that China must build on the paramount reality that it is in the primary stage of socialism and will long remain so while comprehensively deepening reforms. In light of the Decision， efforts should be made to promote the healthy development of strategic emerging industries and advanced manufacture industries， and to accelerate the transformation and upgrade of traditional industries. This latter is particularly significant today， as it has become apparent that the Chinese economy can achieve sustained development only through transformation and upgrading.

“The key to realizing quality， efficient and sustainable economic development is to deepen strategic industrial restructuring， with the focus on reforming and upgrading traditional industries. Overcapacity has become a stumbling block to our economic development. It is time to take action，” said Li Yizhong， member of the National Committee of the Chinese Peoples Political Consultative Conference （CPPCC） and former Minister of Industry and Information Technology. According to statistics， Chinas industrial capacity utilization rate in the first half of 2013 was at its lowest since the fourth quarter of 2009. What is worrisome is not only the difficulty in completely eliminating overcapacity， but also the fact that certain industries are still knowingly creating overcapacity. Take the steel and iron industry as an example. Statistics from the China Iron and Steel Association show that from January to November 2013， China produced a total of 710 million tons of crude steel， a year-on-year increase of 7.8 percent. A report released by the China Metallurgical Industry Planning and Research Institute forecast that Chinas total crude steel production in 2013 would hit 780 million tons， while its consumption would be about 690 million tons， representing an overcapacity of nearly 100 million tons. Chinas iron and steel industry is suffering medium to serious overcapacity and what is more， this is predictable.

He Daping， deputy to the National Peoples Congress and vice chairman of the board and secretary of the Party Committee of Jiangsu Shagang Groups Huaigang Special Steel Co.， Ltd， suggested a solution to the problem of overcapacity， namely， to eliminate capacity that cant meet the requirements of technology， energy consumption and environmental protection.

Recently， the severity of smog in Chinas cities has enhanced decision-makersresolve to accelerate the elimination of overcapacity. At the 4th China Steel and Iron Energy Conservation and Emission Reduction Forum held in 2013， Liu Bingjiang， member of the National Committee of the CPPCC and vice director of the Department of Total Pollutants Control of Chinas Ministry of Environmental Protection， said that in order to prevent the recurrence of large-scale smog， the focus of energy conservation and emission reduction of the 12th Five-year Plan period would be on the steel and iron industry. Many experts also suggest that while setting the entry thresholds for this industry， more thought should also be given to factors relating to environmental protection， such as energy saving and emission reduction， rather than to economic indexes such as production capacity and volume.

Hebei Provinces steel and iron output has ranked first in the country for 12 consecutive years. On November 24， 2013， a blare marked the start of the provinces move to cut its 6.8 million tons of overcapacity as the shaft furnace of Tangshan Xingye Industry and Trade Co.， Ltd was demolished.

“Of course， eliminating ‘high energy consumption and ‘high pollution capaci-ty is like cutting our own flesh. It will hurt and even damage our ‘sinews or ‘bones； however， it is also like removing toxins to cure illness. Only by cutting down overcapacity can we emancipate advanced production capacity. Therefore， we should organically combine acceptance， transference， integration and elimination and enhance the surveillance and prediction of overcapacity of different industries to make adjustment plans according to different practical conditions，” said Yang Jing， president of the Chinese Academy of Governance.

Ways to Transform and Upgrade

At the outset of 2014， the Chinese government stipulated in its open files that the industrial restructuring， transformation and upgrading would be sped up this year. At the same time， the focus of the next step is on making industrial development more coordinated， reconstructing and upgrading the manufacturing industry， and propelling development of the service industry.

“Rather than abandoning traditional industries， economic transformation aims at innovation. There are no declining traditional industries， but rather declining industrial traditions，” Li Yizhong stated. He believes that Chinas economic development has entered the phase of significant industrial， technological， organizational and market restructuring.

Wang Chang， deputy to the National Peoples Congress and head of the Industry and Information Technology Department of Hebei Province， also pointed out that a large part of emerging industries springs from traditional industries. Many have undergone technological innovation and transformation to upgrade to new industries.

At present， iron and steel enterprises in Hebei are undergoing a positive transformation. Some extend the industrial chain to consume their productivity locally. Others make use of mines in other places or venture into the equipment manufacturing industry. More importantly， the enterprises now pay more attention to upgrading technologies and products as well as innovations so as to raise added value and reduce resource consumption.

“Today， steel and iron is the leading industry of Hebei， followed by equipment manufacturing and petrochemicals. By the end of the 13th Five-year Plan period， the equipment manufacturing industry is expected to be elevated to the provinces pillar industry. In the future， industries involving electronic information， biological medicine and new energy will be greatly encouraged as well，” Wang Chang said.

On top of that， development of the service industry is encouraged to facilitate economic transformation and upgrading. Among 200 major projects launched in Tangshan in 2013， 95 were industrial projects， 71 were modern service projects， 15 were modern agricultural projects and 19 involved infrastructure and basic energy resources. Ventures in modern service and modern agriculture accounted for 43 percent of major projects. In the meantime， continued constructions are under way. Luanzhou ancient town cultural and tourism project in Luanxian County is one such example. In addition， the first-phase construction of Wanjia Trade and Logistics Park in Qianan and Wanli Shopping Center in Tangshan has been completed and put into use.

“The labor-intensive service industry is able to create more job opportunities that better integrate the low-income population into a regions economic development and could also stimulate domestic demand，” Wang Chang said.

Industrial upgrading and economic transformation must be supported by deepening reform and optimizing the external environment. The Chinese government has lowered its GDP growth target to 7.5 percent in recent years to enhance the effect of economic development and send a message to “seek improvement in stability” to Chinese enterprises that are faced with industrial transformation and upgrading. According to Zhang Qingwei， deputy to the National Peoples Congress and Hebei provincial governor， realizing an upgraded economy in the province requires a sacrifice in economic growth rate.

Li Yizhong stated， “China is now closer than ever to reaching its goal of great rejuvenation. It is important to seize strategic opportunities， seek new sources of growth and accelerate industrial upgrading to finally achieve economic transformation.”