China’s Congress Pledges to Fix Overproduction of Steel and Fuel

(Bloomberg) -- China pledged to address the overproduction crippling its steel and oil sectors, two of the country’s worst-performing and most-polluting industries, as the government looks to reconfigure its economy and meet robust growth targets.  

The promise of cuts to steel output was delivered by the National Development and Reform Commission at China’s annual policy meeting in Beijing on Wednesday. The economic planning agency also said it wants refiners to produce less fuel and more petrochemical products, as the electrification of transport rapidly shifts the country’s energy use.

China’s ambitious spending plans for the year otherwise drew a muted response from commodities markets grappling with overcapacity and mindful of the brewing threats to growth from a trade war with Washington.  

Beijing maintained its growth goal of about 5% for a third straight year, buttressed by the highest fiscal deficit target in over three decades and a pledge to raise local government bond issuance to record levels, according to work reports presented at the congress. A top priority for policymakers will be moving faster to address inadequate domestic demand. 

Benchmark copper prices rose slightly, while iron ore fell, a reflection of how spending is likely to be skewed to supporting private consumption and the new economy, rather than state investment benefiting smokestack industries. 

Still, the government’s unambitious goal for reducing energy intensity — effectively giving up on its five-year target — acknowledges the challenges it has faced in transitioning to those new growth drivers after a disappointing recovery from the pandemic. 

Other headlines from the congress: 

• A pledge to expand the emissions trading system to cover more industries as part of a wider push to limit greenhouse gas pollution.
• Construction of clean energy bases in the nation’s interior to be accelerated, and more done to integrate renewables into local grids. Coal production will still rise, though, consolidating the fuel’s role as baseload power source.
• A boost to the annual grain production target, as the world’s biggest agricultural importer continues to bolster food security amid mounting tensions with the US.
• Possible plans for a hydropower project in Tibet, fanning speculation of a mega-dam that would test its engineering and diplomatic nous.

Also On the Wire

China will impose tariffs on a slew of US farm products as part of its countermeasures against Washington, threatening to disrupt a major portion of trade between the two agricultural powerhouses. Targeted tariffs aimed at US farmers could be intended to swing US public opinion against a trade war, said Bloomberg Economics.

This Week’s Diary

(All times Beijing unless noted.)

Wednesday, March 5:

• National People’s Congress begins in Beijing, day 1
• Caixin’s China services & composite PMIs, 09:45
• CSIA’s weekly polysilicon price assessment
• CCTD’s weekly online briefing on Chinese coal, 15:00
• EU-China forum on climate science in Beijing, 15:00

Thursday, March 6:

• National People’s Congress in Beijing, day 2
• CSIA’s weekly solar wafer price assessment

Friday, March 7:

• National People’s Congress in Beijing, day 3
• China’s Jan.-Feb. trade balance and 1st batch of trade data, ~11:00
  • Crude oil, natural gas & coal imports; oil products imports & exports
  • Iron ore, copper & steel imports; steel, aluminum & rare earth exports
  • Soybean, edible oil, rubber and meat imports; fertilizer exports
• China’s foreign reserves for February, including gold
• China’s weekly iron ore port stockpiles
• Shanghai exchange weekly commodities inventory, ~15:30

Saturday, March 8

• National People’s Congress in Beijing, day 4

Sunday, March 9

• National People’s Congress in Beijing, day 5
• China’s inflation data for February, 09:30
• China to release Feb. aggregate finance & money supply data by March 15

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