According to sources at the National Development and Reform Commission (NDRC), the State Council has recently issued a circular on expediting the restructuring of industries with excess capacity in a bid to resolve the problem resulting from over-investment in sectors such as iron and steel, aluminium electrode, acetylene, iron alloy and coke over the past few years. Emphasis will be placed on coordinating industrial policies with polices governing credit, land use, construction, environmental protection and safety.

According to the official in charge of this at NDRC, this is an important, uphill task forming part of the macro-control measures being undertaken. It is also a crucial move aimed at maintaining the momentum of steady economic growth.

According to the circular, the major tasks for restructuring the industries with excess capacity this year are as follows. First, strengthen compliance with industrial policy in the areas of credit, land use, construction, environmental protection and safety, continue to keep tabs on fixed asset investment, and guard against a rebound in investment. Second, steadfastly implement the interim rules on promoting industrial restructuring; continue to improve industrial planning; raise and strictly abide by market entry thresholds relating to the environment, safety, technology, quality and comprehensive utilisation of resources; and ban the increase in new capacity. Third, continue to rectify projects that are under construction or being planned; projects that fail to meet market entry requirements will be terminated in accordance with law. Enterprises that are found to be damaging resources, polluting the environment and failing to meet safety standards will be closed down according to law. Fourth, renovate and upgrade traditional industries in various aspects such as enhancing technology level, improving products, protecting the environment, ensuring safety, reducing consumption, and comprehensive utilisation. Fifth, give support to enterprises in sectors such as iron and steel, cement, aluminium electrode and coal to carry out merger & acquisition (M&A) and reorganisation according to market forces; encourage enterprises that are strong to grow further; and raise the overall technology level and degree of concentration of industries.

The NDRC official called for strict adherence to the overall requirements set out in the State Council circular in pushing forward the restructuring targeted at excess capacity, and a thorough understanding of the basic principles of the restructuring. First, the most fundamental rationale of the restructuring is to establish the basic role of the market in resource allocation. With market forces as the driver, market and resources constraints would be used to force enterprises to speed up technological upgrade, M&A, elimination of backward production processes, and eventually help propel the optimisation and upgrade of industrial structure. Second, on the basis of giving full play to market forces and the decision-maker role of the enterprise, government authorities at local levels should perform the following functions: (1) standardise market order by deepening reforms, paving the way for greater play of market mechanisms; (2) make combined use of economic, legal and administrative means to strengthen the guidance of industrial policy, credit policy support, fiscal policy adjustment, and promote industrial restructuring. Lastly, all parties concerned should strictly adhere to the principles of differentiated treatment and "supporting the strong at the expense of the weak" depending on the actual circumstances of different industries, regions and types of enterprises. In short, the guiding principles are: supporting the strong while giving up on the weak, seeking upgrade and renovation of the qualified while closing down the backward, and adopting M&A and restructuring while letting others go bankrupt and cease operation.