Xi Yanchun (host):

Good morning, ladies and gentlemen. Welcome to the policy briefing of the State Council. Today we will discuss two very important topics. First, we will invite Mr. Lian Weiliang, deputy director of the National Development and Reform Commission, and Mr. Zhou Changyi, director general of the Department of Energy Conservation and Resources Utilization of the Ministry of Industry and Information Technology, to talk about the special inspection program on resolving overcapacity in the steel and coal sectors. Second, Mr. Long Guoqiang, deputy director of the Development Research Center of the State Council, and Mr. Zhang Ji, assistant minister of Commerce, will introduce the policies and measures to support the stable growth of foreign trade and their implementation. They will also answer your questions. Now let’s give the floor to Mr. Lian.

Lian Weiliang:

Friends from the press, ladies and gentlemen, good morning. It is my pleasure to take this opportunity to introduce the inspection on resolving overcapacity in the steel and coal sectors. And I would like to extend my appreciation for your long-term concern and support of this issue.

Resolving overcapacity in the steel and coal sectors is a major decision made by the Central Committee of the Communist Party of China and the State Council, which is also an important task in promoting supply-side structural reform. Its success will enable the smooth progress of supply-side structural reform and stable economic and social development. The CPC Central Committee and the State Council have attached great importance to this work. President Xi Jinping noted that cutting overcapacity is the first priority in supply-side structural reform, which should be advanced unswervingly. And Premier Li Keqiang stressed that we should firmly eliminate excessive capacity with strong determination and effective measures. Vice-Premiers Zhang Gaoli and Ma Kai, State Councilors Yang Jing and Wang Yong as well as other State Council leaders have held meetings to make special arrangements on this issue.

Local governments and related departments have conscientiously implemented the decisions from the CPC Central Committee and the State Council, and achieved remarkable results with quick, effective actions. As of the end of July, 21.26 million tons of production capacity was cut in the steel sector, accounting for 47 percent of this year’s target of 45 million tons. And over 95 million tons of excessive capacity was eliminated from the coal industry, 38 percent of this year’s target of 250 million tons. Some regions have completed their annual tasks. However, progress is not balanced among regions. A few regions that were slow in launching the work of cutting overcapacity need to quicken their pace.

To encourage local governments and enterprises to further raise awareness, promote the effective implementation of related policies and ensure the successful completion of annual targets in strict accordance with the schedule and requirements, the State Council decided to carry out a special nationwide inspection on cutting excessive capacity in the steel and coal sectors. On Aug 16, the 144th State Council executive meeting chaired by Premier Li made arrangements for this inspection work.

The inspection plan was officially issued on Aug 17 in accordance with the arrangements and requirements of the meeting. The inter-ministerial joint conference organized 10 inspection teams, which will successively start inspections in provincial regions starting next week. The inspection is aimed at further clarifying targets and responsibilities, detecting and resolving problems in a timely manner, and ensuring the successful completion of this year’s targets.

Lian Weiliang:

In response to the unbalanced progress among regions and enterprises, the inspection will focus on the following eight aspects:

First, check on whether local governments and related departments have effectively implemented related policies on resolving overcapacity in steel and coal sectors, and introduced support measures in a timely manner.

Second, check on whether the governments at all levels and central enterprises have assumed the overall responsibility for cutting overcapacity in their jurisdictions and subsidiaries, and whether they have assigned specific tasks to enterprises and people in charge. Their mechanisms and measures for ensuring the completion of targets will also be inspected.

Third, check whether local governments and central SOEs are following the schedule and timeline to cut excessive capacity, dismantle equipment and close mines in ways that prevent future overcapacity.

Fourth, check whether local governments can collect funds for capacity reduction through multiple channels, formulate fund management regulations, and allocate bonuses and subsidies according to the regulations.

Lian Weiliang:

Fifth, check whether staff resettlement measures are in place and employees are reassigned according to laws, regulations, and procedures; ensure funds are strictly used for resettlement and reassignment.

Sixth, conduct special campaigns to supervise joint law enforcement on construction of backward or illegal projects, inspections on security, environment protection, energy consumption, quality, land and mines, and output reduction of coal mines.

Seventh, check whether local governments have established the information announcement system on capacity reduction, accepted social supervision, and set up credit records for related responsibility subjects.

Eighth, find out whether local governments are exploring effective ways to cut excessive capacity, and share experiences and best practices to solve common problems.

The inspection will combine self examination and on-site supervision. First, local governments and departments should find the problems and sum up experiences to propose improvement policies and suggestions, and submit reports. Second, 10 inspection teams will be set up by the inter-ministerial joint conference to conduct on-site examination in steel and coal producing provinces (autonomous regions and cities) and related central SOEs from late August to early September. Inspection teams will be formed by personnel from members of the joint conference and the general office of the State Council, as well as industry experts.

Lian Weiliang:

The joint conference will set up work procedures and organize training sessions in advance to ensure inspection results. Inspection teams will learn about the situation through reports, meetings, files, and on-site reviews, and complete inspection reports after evaluation and exchange of opinions with local authorities. In addition to eight key areas, the inspection should verify problems, typical cases, suggestions from local governments and enterprises on capacity reduction, illegal enterprises and projects and those that fail to meet environmental standards.

We welcome the press to participate in the inspection and offer your opinions and suggestions.

Thank you!

Xi Yanchun:

Thank you, Mr. Lian, and let’s give the floor to Mr. Zhang Ji.

Zhang Ji:

Thank you. It is my pleasure to exchange views with friends from the media, and please accept my appreciation for your support and concern about China’s foreign trade.

On Aug 16, Premier Li Keqiang chaired an executive meeting of the State Council, and heard opinions from the Ministry of Commerce and the Development Research Center about policies to promote stable growth of foreign trade in the past three years. The meeting analyzed problems and difficulties, and put forward clear requirements for future policy execution.

Due to the aftermath of the global financial crisis, China’s foreign trade is facing a complicated situation, with weak external demand and increasing domestic costs. Over the past three years, the Chinese government issued 12 documents to boost foreign trade, and put forward a series of measures targeting enterprises’ needs. Furthermore, government departments, along with local authorities, made efforts to implement policies and help ease the burden on enterprises.

Zhang Ji:

Recently, the Ministry of Commerce, the Ministry of Finance and other departments conducted evaluations on implementation of those documents through enterprise symposiums, field research, questionnaires, and in-depth interviews. The State Council also entrusted its development research center to make its own evaluation as an independent third-party. The results turn out to be positive, and can be concluded in eight respects.

First, the export tax rebate system has been improved. Since 2015, incremental parts began to fall on the central government’s burden. To condense the rebating process, classified management on export enterprises was put in place, and taxes levied on first-class enterprises can be refunded in two workdays.

Second, support has been increased for credit insurance. Insurance institutes can enlarge their scope under the commercial principle. Since 2013, the penetration rate of short-term insurance increased from 14.8 percent to 17.8 percent. And insurance support was normalized for financing in the export of large complete sets of equipment.

Third, enterprises’ burden has been reduced. After determining 126 fees concerning export and import through the on-site surveys, the National Development and Reform Commission (NDRC) started rectification work around the country, relieving enterprises’ burden of at least 11 billion yuan. The NDRC also published charge lists of services related to business operations. The Ministry of Finance and the General Administration of Customs have also conducted test programs, exempting charges on enterprises with no bad record on machinery lifting and shifting. Social insurance premium rate has also been reduced.

Fourth, the level of trade facilitation has been improved. The General Administration of Customs has improved its airport checks, gradually decreased the export check rate, and raised the rate of paperless customs clearance to 95 percent. A one-time declaration, check and release system was implemented, and 39 percent of redundancies were cut. Chinese currency settlement was simplified in cross-border trade and investment, which reduced foreign exchange costs and risks to enterprises.

Zhang Ji:

Fifth, development of new business models in foreign trade has been accelerated. Guidance and services for 13 cross-border e-commerce pilot zones have been reinforced, trade mode of market purchase has been developed in three marketplaces, and 102 pioneer enterprises have been cultivated to shore up the development of foreign trade service companies.

Sixth, innovative development of processing trade has been sped up. Ministries and departments, including the National Development and Reform Commission and the Ministry of Commerce, put forward some related action plans. According to the plans, industrial land for processing trade has been given top priority, and financial support has been strengthened. The construction of 44 places to undertake processing trade’s gradual transfer was also sped up in efforts to promote the processing trade’s transition and upgrading and its gradual transfer to central and western regions of China.

Seventh, related work concerning imports has been reinforced. Technology and products, which are encouraged to import, have been revised several times in support of advanced equipment and technology imports; 11 local oil refining enterprises received import qualification to stabilize the import of resource products; a batch of daily consumer goods’ import duties have been reduced, with an average reduction of over 50 percent, and other pilot projects in imports have been accelerated.

Eighth, support for service trade development has been strengthened. A total of 718 enterprises and 262 projects have been identified as key firms or programs in national culture exports. The Ministry of Industry and Information Technology agreed to 314 norms on service trade to meet international standards.

With efforts from all parties, China’s foreign trade structure has been optimizing in the past three years, with increasing quality and efficiency. Its percentage in global export volume has increased from 11.2 percent to 13.8 percent. China has remained the biggest country in freight trade, and this year the country continues a stable and positive trend in foreign trade.

Zhang Ji:

Summing up the several evaluations on foreign trade policy implementation, most enterprises acknowledged that the policies have achieved positive results, but there are still certain problems.

First, unnecessary fee collection still exists. Some ports and shipping companies charge high fees, and some commercial service enterprises even add extra charges.

Second, high financing costs for companies remains a major burden, with such costs reaching 10-15 percent, three or five times more than in developed countries.

Third, the level of foreign trade convenience needs to be improved. Procedures for tax reimbursement of exports should be more efficient, inspection personnel and standards in trade gateways should be unified to better facilitate foreign trade, and any procedures adding to enterprises’ cost burdens should be cut.

Fourth, export orders should be further regulated. Weak intellectual property rights protection leads to increasing infringement cases against enterprises that own proprietary technology and brands. Some export products see a high volume of copies, leading to serious cutthroat competition and declining profits.

Fifth, differentiated policies on processing trade should be further improved. Compared to China’s eastern region and neighboring countries, China’s central and western regions still face some issues in undertaking the processing trade transfer, such as incompetent support industries and inconvenient logistics transportation. Related support on finance, circulation and talent needs to be increased.

Sixth, policy innovation in new business models should be strengthened. A unified national plan with high standards is urgently needed. The problems that foreign trade service companies are facing, such as unidentified status and heavy responsibility, need to be resolved with policy support.

Zhang Ji:

In the next step, the Ministry of Commerce will further comb existing policies with all related departments and local authorities in accordance with the requirement of the State Council executive meeting, focusing on major tasks, which include:

First, further strip away arbitrary charges. Second, alleviate difficulties in financing by guiding financial institutions to intensify financial support for profitable enterprises. Third, further enhance trade facilitation, accelerate tax refunds for exports, promote the construction of “a single window” for international trade, and comprehensively promote paperless customs clearance. Fourth, continue to research differentiated policies for processing trade. Fifth, accelerate promoting the development of new format, expand pilot areas for cross-border e-commerce and market procurement method.

Sixth, continue to create an international and law-based business environment. Actively respond to trade friction, strengthen protection of intellectual property rights in foreign trade, and strengthen supervision of rigorous competition. Seventh, further exert the role of two-way investment in promoting foreign trade. We will work on reducing the burden on enterprises, create a fair external environment to enhance the international competitive edge of enterprises, facilitating the rebounding of foreign trade.

I would like to answer questions raised by journalists that are of most concern by all of you. Thank you all!

Xi Yanchun:

Thank you, Mr. Zhang Ji. Now, Mr. Long Guoqiang will make an introduction.

Long Guoqiang:

Dear media friends. Foreign trade is of great importance to China’s development. While against the combined headwinds of insufficient international demand and the domestic transition of old-and-new competitive edge, China’s foreign trade is facing enormous downward pressures.

In coping with this, the State Council has rolled out 16 policies and measures to promote the steady growth of foreign trade since 2013. The Development Research Center of the State Council conducted an independent third-party assessment. Several research teams, headed by our director Li Wei and three other deputy directors, launched research trips to nine cities across the country, covering the coastal area, the central and western region and the northeast region.

We striven to make the assessment objective, neutral and sticking to the truth through generalizing opinions from multiple sides, including the central government, local governments, enterprises, and financial institutions.

Let me briefly introduce some conclusions from the assessment. In policy design, the 16 policies and measures are wide-ranging and well-targeted, which fully displays the great importance that the State Council attaches to maintaining stable growth in foreign trade. In terms of policy implementation, related departments and local authorities should make clear their division of duties, mulling over their respective policies and measures and making efforts to promote the implementation. The assessment also strengthened the work mechanism in research and supervision. For instance, 64 relevant policy documents were introduced under the lead of the Ministry of Commerce. In addition, departments including the National Development and Reform Commission, Ministry of Industry and Information Technology, and Ministry of Finance have formulated their own complementary documents, as did local governments.

Long Guoqiang:

As for policy results, participants at the feedback symposium generally gave a positive evaluation of the policies. We also handed out a questionnaire, which also received good feedback. From the real situation of our foreign trade development, exports continued to decline. While, as Zhang Ji mentioned, the decline in our exports was significantly lower than the decline in global trade. In this respect, our global market share is still on the rise.

Moreover, there are some highlights in trade structure. To the extent that trade decline is marginal signifies that it has a certain resilience. Meanwhile, new formats in foreign trade, such as cross-border e-commerce and market purchasing, are still in the developing stages. In particular, exports in high technology maintained a strong momentum, which means that China’s foreign trade structure is being optimized. In addition to the trade of goods, trade in services maintains high-speed growth, standing as an obvious contrast to the trade in goods. It reflects the transition in the comparative advantage of our country. Despite the downward pressures, these highlights in our trade structure are a positive effect produced by our policies.

Long Guoqiang:

Last is that there are problems that need to be addressed in the policy implementation process, and our colleagues said those are to-be-solved policy difficulties, such as the difficulties in fundraising unveiled by enterprises, the long tax refund cycle of enterprises in foreign trade service, the need for suitable facilities for new business models of cross-border e-commerce, policy obstacles and the improvement of related cross-department and cross-region facilities. There also exist supervision blind spots, such as some enterprises positively responding to the reduction of government charges, while some commercial enterprises take this opportunity to increase fees and increase business costs for foreign enterprises. Some illegal enterprises use cross-region mergers and agents to defraud tax refunds, and there is a need to crack down on fake trade.

System problems such as local governments giving compulsive indicator requirements to enterprises, protection of intellectual property rights of innovation-driven enterprises in the domestic and overseas markets and the tolerance level on reform innovation can constrain market vigor. During the supervision process, the market needs a better systematic environment to serve foreign trade development. Therefore, as Premier Li Keqiang said at the State Council executive meeting, in the next step, we should stick to expanding opening-up, grasping the bonus opportunity brought by globalization to create new ones, and firmly pushing system innovation and build a new mechanism for an open economy.

We should implement the policies to solve the problems, and focus on creating new advantages for China’s participation in global competition. The State Council has deployed the tasks needed in the next step, and we expect new achievements in foreign trade under a difficult domestic and foreign environment. That is our basic conclusion, and I am glad to take your questions now, thank you.

Xi Yanchun:

Thanks for Mr. Long’s introduction. It is time for questions. Please give the name of your news agencies before asking questions.

China Daily:

I want to ask Mr. Lian from the National Development and Reform Commission (NDRC): You just mentioned that iron and steel industry has completed 47 percent of this year’s target of eliminating production capacity, and the coal industry has completed 38 percent, and we can see that the remaining tasks in the next few months are huge. Does NDRC have further measures to help them? Will it take measures to strengthen supervision to guarantee that the goals are met? How will local governments that do not complete the tasks be dealt with? Thank you.

Lian Weiliang:

Thanks for the question. Eliminating production capacity work is guided by the Central Party Committee and the State Council, led by NDRC and Ministry of Industry and Information Technology, and 25 member units of inter-ministerial conference system are involved, so I would like to take the questions with Mr. Zhou from the Ministry of Industry and Information Technology.

The focus of your question is whether the tasks of eliminating production capacity could be completed. Although the work is complicated, and faces many actual difficulties, we still have confidence in completing this year’s goal and in the ultimate goal of eliminating production overcapacity. This confidence is mainly based on three aspects. First, both the Central Party Committee and the State Council attached great importance to the problem, and President Xi Jinping and Premier Li Keqiang released a series of instructions. Recently, Vice-Premiers Zhang Gaoli and Ma Kai, and State Councilor Wang Yong held four symposiums to learn about the situation, grasp the process and coordinate problems. The executive meeting of the State Council also heard a work report on the issue and arranged a nationwide inspection. All this reflected the government’s attention to the issue, which provides great conditions for completing the task goals.

Second, regions and enterprises have reached consensus in cutting overcapacity. Recovery in steel and coal prices are not brought by increase in demand. There are many reasons for the recovery, yet the most important one is cutting overcapacity. Therefore, many regions and enterprises become willing to make the cuts. In the next step, we hope the initiative becomes stronger and more united.

Third, many regions and enterprises have explored some successes and measures in cutting overcapacity. We held meetings in Hangzhou and Chongqing in July and exchanged many good experiences. We have also formed an effective work mechanism to cut overcapacity. The inter-ministerial joint conference basically held a weekly coordination meeting to ensure that new situations and problems that occur during the process will be addressed in time.

Lian Weiliang:

Regarding further measures such as when tasks cannot be completed, I think it can be resolved in four implementations: duties, measures, progress, and sanctions.

First is to further clarify enterprises’ duties, and local governments should be responsible for cutting overcapacity. We have signed responsibility agreements, and everything should be strictly carried out according to the agreement.

Second, regarding cutting overcapacity, the State Council issued two documents, one is about steel and the other is about coal. Related ministries then created eight supporting documents.

Third, we need to count and report the progress every month. Previously, some enterprises put off the work until the end of the year. Cutting overcapacity is complicated and requires time, so we ask enterprises to arrange the work ahead of schedule.

Fourth, to support cuts in steel and coal, the central government arranged specific capital for industrial structural adjustment. Those who cannot fulfill the tasks on time will get less financial support.

There are sure to be more difficulties, so we need to make more efforts. Thank you.

Xi Yanchun:

Mr. Zhou, do you have anything else to add?

Zhou Changyi:

I will add one point. After the State Council issued the sixth document in February, our major job in the first half of the year was to make a detailed plan to achieve the goal of cutting steel capacity by 100 million to 150 million tons. We have asked steel enterprises to set their own plan and signed a liability statement with provincial and municipal governments in June.

That is to say, in the first half, local governments and enterprises were mainly making the plan to cut overcapacity, not implementing. So, it is not a slow pace that they have achieved 47% of the goal

China Radio International:

I would like to ask two questions to the leaders of the Ministry of Commerce. In three years, the State Council has issued 16 policies aimed at boosting foreign trade. What have different departments and local governments done to implement the policies? And, Mr. Long, what will be the prospects in Chinese foreign trade?

Zhang Ji:

Thank you for your question. To be honest, it is difficult to implement the policy perfectly. The Ministry of Commerce as well as other departments have made many efforts, such as making a task list, creating a coordination mechanism among different departments, conducting investigations and examinations, and strengthening communication with the public — after every policy was issued, we would hold a news conference to explain and respond to public concerns.

For example, for the policy of cutting administrative fees: after official investigations, the government planned to cut 126 items of unfair fees charged by either the government or enterprises, including the import and export license fee, the booth fee at China Import and Export Fair, and telex release fee.

The telex release fee used be as high as 500 yuan ($75.30). After we urged some shipping companies to cut the fee according to law, it was reduced to 150-200 yuan. It is not a remarkable change, but considering the quantity of fees that are paid, the cut will greatly benefit enterprises.

Charges for a batch of items have been canceled, and charging standards were lowered during the past three years, and a list of operating service fees concerning imports and exports was drawn up. All these measures helped reduce the financial burden on enterprises by more than 20 billion yuan.

However, some of the policies are not working well, due to the lack of detailed regulations and violations by enterprises. So we will further implement the existing policies, and solve problems encountered during the process.

Long Guoqiang:

Let me answer the question concerning prospects in foreign trade. It depends on two key factors — overseas demand, and our own competitiveness — both of which are not optimistic at present. As we all know, with downward pressure, global trade is experiencing low-speed growth or even negative growth. Meanwhile, some countries are resorting to protectionism measures, especially targeting China, such as the anti-dumping and anti-subsidy measures against China’s iron and steel products, which are in fact protectionism in the guise of WTO rules. In a word, our external environment is severe.

On the other hand, our traditional competitiveness lies in labor-intensive manufacturing, which is the major value-added parts. But in recent years, with rising labor costs and price hikes in land and financing, our traditional advantages are weakening. In addition, more developing countries such as Vietnam and Cambodia are also taking part in the international competition of labor-intensive industries. Of course, some outstanding enterprises with innovative ideas, high technology and excellent brands are emerging, but new competitiveness relying on quality, brands, technology, service and international sales network are far from taking shape.

Foreign trade may keep declining this year, or even worse than last year. That is why the State Council takes this issue seriously, and a steady growth of imports and exports will benefit our employment.

The sluggish trend of foreign trade is likely to continue in the next few years, with a lot of work for us to do, among which the most important is upgrading our industrial structure from a labor-intensive one to a capital- and technology-oriented one, just as other new economies did.

Zhang Ji:

I quite agree with what Mr. Long said just now. Here I want to add a few things. Foreign trade is the trade between countries, so we should put this topic in an international context. After 30 years of high-speed growth, China’s foreign trade is now slowing down. But there’s no need to panic. We should look at it from a rational and objective perspective despite the difficult situation.

Foreign trade consists of two parts. One is exports. It’s been years since we saw such a shrinking international demand. As some international experts said, 2015 was the worst year since the 1980s, not 2009 as some people have said. On the domestic supply side, our traditional competitiveness has been impaired by rising costs of production factors, growing housing prices, as well as financing difficulties and expenses. Meanwhile, we should realize the number of foreign orders is decreasing, which has a big influence on our export data.

The other is imports. Falling commodity prices have a huge impact on imports. Last year, the volume of imported commodities actually increased, but the total value decreased by more than $180 billion. This is actually a good thing, because we buy more with less money, though the data released may appear worrying. At the same time, domestic economic slowdown is weighing on imports. Faltering fixed asset investments, among others, cut the demand for investment and intermediate goods, which take up 93 percent of total imports.

From these factors, therefore, China’s foreign trade is indeed facing huge downward pressures.

However, we found that a great many companies have been faring well as they persevere in innovation and improvement of branding, technologies, sales, networks, and services. Under the current circumstances, we need to spare no effort to stabilize growth while steadfastly adjusting economic structure and breeding new competitive advantages for foreign trade, in order to lay a better foundation for future development. We think the fundamentals of foreign trade haven’t changed, and the prospect is good. Thank you.

Financial Times:

The Chinese government, as I understand, meant to let the market play the decisive role in cutting overcapacity when it announced the target. But from what you said, did you mean local governments will continue to support steel and coal industries via subsidies and preferential loans? Why can’t they just let the market do its job?

Lian Weiliang:

To cut excess capacity, we need both the market and the government. The government will play its role by following the rules of market economy and giving full play to the market mechanism. However, the market mechanism has become ineffective now. That’s why there’s an overcapacity problem, and we need to solve it with the help of government forces. We have to be clear about that. Each province and region should be aware of their responsibilities and targets by signing duty contracts. During this process, we have to eliminate outdated capacity, protect advanced capacity and guide the exit of other capacity.

Local and central governments will not take subsidy measures to support steel and coal mining industries to increase capacity. Our specialized fund will be used to reduce instead of increasing capacity. And it will mainly be used for the resettlement of laid off workers. While eliminating capacity, enterprises will face many difficulties and problems during the resettlement of laid off workers and handling debts.

Therefore, the market alone may not be enough to force enterprises to reduce capacity. But government support will help them to quicken their pace to reduce capacity, so there is no conflict in the role of the government and the role of the market in cutting capacity. This is actually an advantage of China’s system.

NHK:

You have just mentioned the drop of domestic steel consumption this year, but the steel exports increased year on year and the export price is cheap. So the international community is worried that China has not done enough to cut capacity. Please share with us your opinion? Thank you.

Zhang Ji:

The international community has reached a consensus on the global steel overcapacity, which is a global issue that needs to be dealt with through joint efforts.

China’s steel capacity is mainly domestic-oriented. We produce nearly half of the world’s steel products, but we also consume nearly half of them.

Our steel export is at most about 13 percent of our production some years while some country’s steel exports exceed 40 percent of their total production. If they continue to raise this question, I think we can hold a joint discussion. China’s per capita consumption of steel and export’s proportion of total production and the usage efficiency are within a reasonable range from a global view. So we need to look at China’s steel overcapacity rationally. Our steel capacity aims at meeting domestic demand instead of building a pillar export industry. After decades of effort, China became self-sufficient and its exports and imports of steel products were balanced in 2005. Previously, China’s imports were always bigger than exports. This is entirely a marketization process owing to the constant increasing competitiveness of our steel industry.

I need to clarify one point. Seventy percent of our export markets do not produce steel at all and they must import steel products.

As to exports to some developed countries, our types of export steel products are generally complementary with those produced in these countries. And several years ago, we also imposed export tariffs on some types of steel and iron products. There are no other countries in the world, including those developed countries which export 40 percent of their steel and iron products, who have taken such measures.

We have taken restrictive measures on some of the steel and iron products, how can we then subsidize steel enterprises to increase capacity? This is illogical. And what’s more, China still has over 80 million people living in poverty in need of help. Our only objective in exporting steel products is to make some money through equal competition.

Our export of steel products entirely depends on our comparative advantage and our competitive capacity. There is no subsidy at all.

China is voluntarily cutting capacity because it is conducive to the sustainable development of our industry. We all know that 80 percent of iron ore is imported from other countries. We will not import large amounts of such materials, exporting medium and low-end products after processing these ores and leaving the pollution in China. We hope to see clear water, blue skies, and fresh air. So, no matter from which point of view, China’s determination, willingness, actions, and effects in cutting capacity lead the world. I hope our media friends will tell the world truthfully China’s endeavor in reducing capacity.

Lian Weiliang:

I have to emphasize that cutting excess capacity by the government is a pragmatic measure following the law of market economy, and we also launched supply-side reform to reinforce its implementation. Second, for the first seven months of 2016, the accumulative capacity of crude steel has dropped by 0.5 percent, which is the result of both government intervention and market demand. Third, iron and steel overcapacity is a global issue. In 2015, the global capacity utilization was only 69.7 percent, while ours reached 71.2 percent. Even with a higher utilization rate, we still took the initiative to cut excessive capacity, which showcased China taking responsibility. Fourth, we should let the market play a key role in allocating resources, with proper macro-control from the government which only works when loopholes are found in the market mechanism. We hope international communities are clear about this, without urging China to leave cutting overcapacity all to the market while demanding government intervention when it comes to exports. That’s a double standard we should avoid when talking about market economy. Thank you.

Economic Daily:

My question is addressed to Mr. Lian. You just mentioned that one of the eight major tasks for inspection is detailing the funds used in overcapacity cuts. Could you detail the usage of the 100 billion yuan in funds?

Lian Weiliang:

The proper usage of the fund is the key to tackling industrial overcapacity, which deserves great attention. First, I should explain the concept of the fund. The 100 billion-yuan fund is first and foremost used to resettle the displaced staff during overcapacity cuts under the arrangement of the central government, covering the entire iron, steel and coal industry. A few figures have been specified for the overcapacity cutting mission. China plans to cut steel production capacity by 100 million to 150 million tons, and coal output by 800 million tons over the next three to five years. This is the first year of the five-year plan, in which we cut 45 million tons of steel production capacity. We have finished one-third of the plan. As of this year, the financial department has allocated 30.7 billion yuan to local governments and enterprises. And another 20 percent in follow-up funds will be allocated after the success of overcapacity cuts, according to the plan. And the fund policy lays out refunds of any overpayment or supplemental payments.

Supervision plays a crucial role in the funds’ proper usage. Three aspects, which are usage, auditing and public supervision, should be emphasized during the process. With the financial department, we should also do follow-up supervision of the spending. Currently, financial departments are aware of all the usage details such as whether the funds were used to resettle laid-off staff. And we have attached great importance to the three aspects of supervision, especially the last one, public supervision. We required local governments to establish a public notification system to allow the media to carry out further public supervision.

Market News International:

While cutting overcapacity, how will the financial stability of enterprises be ensured? I know that the debt-to-equity plan has been implemented at Sinosteel Corp, so what is the government’s guideline on debt-to-equity? In addition, I know that some local governments plan to use Credit-Default Swap (CDS) to help some companies in debt to finance. What do you think about that?

Lian Weiliang:

The debt issue for enterprises that have to cut capacity is a complicated and tough one. That is why we have created a specific policy for that problem.

In terms of dealing with the finance issue, laws and regulations must be obeyed. According to finance laws, evading debts is illegal. Those who evade debts will get on a black list and punished. In addition, the government will let the failed companies bankrupt themselves and encourage some to be merged and restructured.

You have mentioned debt-to-equity. It is an important measure for enterprises to restructure their debts and to reduce their leverage ratio. After supply-side reform was implemented, the State Council began to research measures to cut the leverage ratio, including debt-to-equity. The principle of it is market-orientation and rule of law. The policy’s details are yet to be published.

Xi Yanchun:

Now, today’s policy briefing is over. Thank you all.