BOFIT Viikkokatsaus / BOFIT Weekly 2017/31

New NBS figures show Chinese production of steel and aluminium climbed to a monthly record in June. For the first half of this year, production was up across the board for steel (up 5 % y‑o-y), coal (up 5 %) and aluminium (up 9 %). China's overproduction creates problems on the international trade front, impedes the structural shift in the economy to higher productivity branches and hurts efforts to deal with air, water and soil pollution issues.

Winding down overcapacity is hindered by fears of social unrest. In 2016, it was estimated that capacity reductions would result to 1.8 million workers losing their jobs in the coal and steel industries. Officials put the number of actual job losses last year in these industries at 726,000 people. In any case, production has increased, as a lot of capacity has been idle. Construction activity supported by local governments and higher commodity prices for steel and coal have helped boost production. Unauthorised production has also increased with rising prices.

Greenpeace reports that only 24 % (20 million metric tons) of 2016 cuts in steel production capacity focused on capacity that was in use, while 60 million tons of new capacity was added through restarted mills or brand new mills.