China Steel Industry Overcapacity

A recent study made by Renmin University, in China, shows that more than half of the Chinese steel industries, about 51.4%, are “zombies”; in other words, companies that need government bailout in order to operate.

According to the study, many of the aforementioned “zombie” companies are located in the south-west, north and north-west of China. These companies are able to survive only due to government help and are not market competitive.

The study promotes that the solution to Chinese steel overcapacity can be solved by disabling government help in this sector, allowing only truly competitive companies to survive.

The Chinese president, Mr. Xi Jinping, seems to agree with this study. He has declared that he intends to overcome the exceeding production of steel in the country by cutting governmental bailout to companies considered “zombies”. Mr. Jinping, therefore, shows his concern with China trade mechanisms and it also may indicate that China is hopefully walking towards a more transparent trade mechanism.

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