The Chinese government is strategically managing the reduction of the nation’s overcapacity of coal, steel and oil in provinces, including Shanxi, Hebei and Shaanxi, and striving to deal with redundant employees in a sustainable way.
The downsizing in the industries became necessary after sales prices fell dramatically, starting in 2012, and the sectors became plagued by overcapacity.
As a result, the nation plans to cut between 100 million metric tons and 150 million tons of steel capacity and 500 million tons of coal capacity in the coming five years. The slashed production will mean 500,000 employees in steel companies and 1.3 million employees in the coal sector will lose their jobs, according to the Ministry of Human Resources and Social Security.
And with so many jobs ending, the way in which displaced workers are redistributed and retrained is expected to be a major challenge for the government in the years ahead.
But Xu Shaoshi, head of the National Development and Reform Commission, the country’s top economic planner, said the overcapacity reduction will not cause a wave of layoffs.
“Beijing has been calling for overcapacity reduction since 2013 and many local governments have showed their ability to deal with the challenge,” he said. “Hebei province, for instance, helped employees change their positions within the companies after mergers and acquisitions.”
Lou Qinjian, governor of Shaanxi, said the local government will make the redistribution of workers its priority as it reduces its overcapacity.
“The Shaanxi government is still in the early stages of calculating the specific number of employees who will be involved and the scale of the financial subsidies that will be needed,” he said. “The government will make every effort to ensure that people’s daily lives are not affected.”
He said many workers will move into newly created jobs in growing industries.
Li Xiaopeng, governor of Shanxi province, said detailed plans about how coal production will be reduced in the province have not been nailed down yet, but the local government has stopped offering new coal mine resources for exploration and has suspended newly approved projects.
He said the coal inventory in Shanxi stands at 50.76 million tons, which is three times what it was in 2011. The massive stockpile is one of the main reasons why production needs to be slashed.
Zhang Youxi, president of Datong Coal Mine Group, the biggest coal producer in Shanxi and the third largest in China, said the company plans to close 12 mines in the coming five years that produce 12.55 million tons. Some 15,000 employees will be affected. The company will shut five mines in 2016 alone and slash 6.6 million tons.
Zhang Qingwei, the governor of Hebei, said the province will cut 60 million tons of steel production capability and also slash 60 million tons of cement and 40 million tons of coal capacity by 2017.
Facing a drop in global commodities prices and the domestic economic slowdown, China’s 27 provinces and autonomous regions, including Shanxi, Shaanxi and Hebei, have listed cutting production capacity as a top priority for this year.
Major steps in that reduction include shutting down zombie companies, reforming State-owned enterprises and promoting mergers and acquisitions.