International

China Orders More Than 2,000 Inefficient Businesses Shut

A Chinese worker pours molten steel into

hide captionA Chinese worker pours molten steel into the casters at a small iron and steel mill in Hefei, central China's Anhui province on June 19, 2010.  

STR/AFP

While some its critics accuse the U.S. government of heavy-handed interference in the private sector, it still has nothing on China.

The Chinese government announced it has ordered more than 2,000 businesses it considers to be not sufficiently green or otherwise inefficient to shut down by September.

The China Daily reports:

China has ordered more than 2,000 companies in 18 industries including cement, coking, iron, paper and dyeing to shut outdated manufacturing capacity by the end of September, according to media reports Monday.

The factories targeted for closure were either highly polluting, highly energy-wasting, or did not meet safety requirements, the Ministry of Industry and Information Technology announced in an order on Sunday, the Shanghai Securities News and other newspapers reported on Monday.

Some obvious benefits of doing this are not only does it allow China to boast about its attempts to green its economy but it also keeps the nation on track as a low-cost producer of the world's goods since inefficient factories drive up costs.

The New York Times reports that even in a country where so much is done on a top-down basis, it has not always been easy for the Chinese government to close such factories in the past since local officials have thwarted such actions.

And from the NY Times story, it sounds like getting rid of inefficient businesses that drive up costs and make Chinese products less competitive in global markets is definitely a major reason for the Chinese government's move.

Over the years, provincial and municipal officials have sometimes tried to block Beijing’s attempts to close aging factories in their jurisdictions. These officials have particularly sought to protect older steel mills and other heavy industrial operations that frequently have thousands of employees and have sometimes provided workers with housing, athletic facilities and other benefits since the 1950s or 1960s.

To prevent such local obstruction this time, the ministry said in a statement on its Web site that the factories on its list would be barred from obtaining bank loans, export credits, business licenses and land. The ministry even warned that their electricity would be shut off, if necessary.

The goal of the factory closings is “to enhance the structure of production, heighten the standard of technical capability and international competitiveness and realize a transformation of industry from being big to being strong,” the ministry said.

A noteworthy aspect of these ordered closings is that China has been fixated on providing work for its huge workforce and closing businesses would at first blush be antithetical to that goal.

But Chinese officials apparently believe their economy is growing at a fast enough clip — its GDP grew at an 8.7 percent rate last year and some forecast it will grow at 10 percent to 11 percent this year — to more than make up for such closings.

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