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Since 2014, China's real estate market has been severely oversupplied, and idle building materials have been piling up ever since. In response, the government has announced "supply-side reform" and made cutting overcapacity in industries such as steel and cement a national priority.
But there are policies from above and countermeasures from below. Some struggling local governments, seeking to boost growth in the short term, are encouraging investment in construction-related industries that already have a significant surplus.
In northeast China's industrial hub, for example, Tangshan Jidong Cement Co., Ltd. has already started construction on a massive 7,200-ton per day cement plant that is likely to exacerbate an already severe glut of construction cement. A factory of this size can indeed bring local awareness, tax revenue and employment in the short term. But such reckless moves run counter to the central government's efforts to make the economy more reliant on services and consumption.
The central government must bear some responsibility. The central government must continue to rely on market rules to manage the economy, and the signals released on the issue of overcapacity are not uniform.
The article pointed out that China's cement industry is getting deeper and deeper in the quagmire of overcapacity. Last year, China accounted for 57 per cent of global cement production. In 2011 and 2012 alone, China produced as much cement as the United States did in the entire 20th century.
The article cited a report by the European Union Chamber of Commerce in China as saying that despite the central government's efforts to reduce capacity in the cement industry, relevant measures can only slow the deterioration of overcapacity in the industry. About a quarter of China's cement capacity is idle.
Only by changing China's existing economic growth model and respecting the law of the market can we really get rid of the predicament of the cement industry today.
