Bloomberg reports that China is reshaping its economy to meet its ambitious growth goals and has committed to tackle overproduction in the steel and oil industries.
For a long time, these two industries have struggled with an excessive production. They are the worst performing and environmentally harmful in the country.
This pledge by the Chinese government to reduce this overproduction is a major step in aligning its economic goals with environmental ones.
China wants to improve the efficiency of these industries, encourage sustainable practices and reduce its ecological footprint by reducing their surplus production.
The move reflects China’s wider strategy of transitioning from an economy based on manufacturing to one that is more innovation-based and service-oriented.
China also aims to build a resilient and balanced economy capable of long-term sustained growth.
China’s energy consumption shifting
China’s National Development and Reform Commission has announced a reduction in steel production at its annual policy meeting, held on Wednesday.
Due to electrification, the country is changing its energy consumption rapidly. The economic planning agency has urged refiners not to produce as much fuel and instead increase production of petrochemicals.
Commodity market participants, who are already suffering from overcapacity, and worried about the economic impact of a possible trade war between the US and China, did not react to China’s plans for ambitious expenditure.
China reaffirmed their commitment to growth in the economy by maintaining an annual GDP target of 5% or more for the third year running.
The fiscal policies are ambitious, with the biggest fiscal deficit in more than three decades. They also include a commitment to issue local government bonds at unprecedented levels.
The government’s approach, as shown in the work reports that were presented to the National People’s Congress (NPC), is proactive and focused on stimulating the economy and maintaining growth amid an evolving and complex global economic environment.
Priority one for the policymakers is to take swift, effective steps to boost domestic demand.
It could be a multifaceted strategy that includes fiscal stimuli, like targeted tax reductions or direct expenditure on infrastructure, in order to stimulate the economy, encourage business and consumer investment, and inject funds into it.
To make borrowing more affordable and to stimulate the economy, you could also use monetary policies such as quantitative easing or lower interest rates.
China’s possible shift in priorities of spending
A slight rise in copper benchmark prices, coupled with a simultaneous drop in the price of iron ore, could indicate that spending priorities have changed.
The shift seems to be in favor of private consumption, and the new innovative industries, over traditional heavy industry investments.
Due to its wide industrial application, copper is often viewed as an indicator of economic health. This suggests that sectors such as construction, electronics and renewable energy will be in good shape.
These sectors tend to be associated with new economic growth and private consumption.
The decline of iron ore, an important ingredient in the production of steel, could indicate a slowdown for state-driven heavy industry and infrastructure projects.
After a slow recovery following the pandemic, the government acknowledged that it had faced difficulties in transitioning from old growth drivers to new ones.
It is clear from its lack of ambition in reducing the energy intensity. This effectively means that it has abandoned its 5-year goal.
The post Why China pledged to reduce overproduction of steel and fuel in this article may change as new information is revealed.
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