BEIJING - China’s government has ordered companies to close the factories of more than 1,400 companies in 19 industries where overproduction has led to price-cutting wars, a sign of the government’s determination to push ahead with an economic restructuring plan despite slowing growth.
The industry ministry issued orders late Thursday 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.
“This is a real move and is very specific compared with previous high-level conceptual framework for economic restructuring,” said Raymond Yeung, a Hong Kong-based economist at ANZ Banking Group Ltd. “They maintain the overall tone that they’re not focusing on the quantity of growth but the quality of growth.”
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 that 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,” said Nomura economist Zhiwei Zhang in a report. “This reinforces our view that aggressive policy stimulus is unlikely … and that growth should trend down.”
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 cut 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.
China’s stocks fell for a third day Friday while smaller companies extended a slump after reaching the highest valuations in more than two years. Forecasters have repeatedly trimmed their growth outlook for China as data showed weakening growth in retail sales, factory output and other economic segments.
The International Monetary Fund last week cut its 2013 forecast to 7.8 percent growth from an 8.1 percent outlook announced just three months earlier. The fund’s chief economist, Olivier Blanchard, said China was the country at the greatest risk of a “large decrease in growth.”
Private-sector forecasters say growth could dip below 7 percent in coming quarters. Some analysts believe the government continues to inflate the nation’s growth rate and that it is probably closer to 5 percent, or lower.
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.
Also Tuesday, the Cabinet announced a tax cut for small businesses, indicating that the government is trying to target specific parts of the economy without a costly, across-the board stimulus.
Thursday’s order by the Ministry of Industry and Information Technology said it aims to eliminate “backward production capacity,” an indication that 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.
China 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 revenue for state-owned construction companies and suppliers of steel and other building materials propped up inefficient producers and encouraged some to expand.
In the cement industry, Thursday’s order calls on companies to shut down facilities with annual production capacity of more than 92 million tons. Steel producers were ordered to eliminate 7 million tons of production capacity.
Information for this article was contributed by Joe McDonald of The Associated Press and by Aibing Guo, Li Liu and Weiyi Lim of Bloomberg News.
Front Section, Pages 1 on 07/27/2013