At the opening of the annual National People's Congress, China's premier, Li Keqiang, promised "we will make our skies blue again" by tackling pollution caused by coal-burning for heat and power. The economic growth target has been set at "around 6.5 percent or higher, if possible."
This is lower and more flexible than last year's target and suggests a more determined approach to economic reform and closure of excess industrial capacity at the expense of growth.
China produces more than 1 billion tons of steel and almost 3.5 billion tons of coal each year, far more than it needs. Over the next three to five years, it is China's stated aim to close 140 million tons of steel capacity and 800 million tons of coal capacity — and there are those who say that even that is too modest. Many feel that progress toward addressing excess capacity and the growing debt issue associated with it has been too slow.
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Debt concerns have dominated the minds of investors and policymakers alike in recent years, as the rate of new lending has increased at over twice the rate of economic growth. Fears of imminent collapse have been misplaced, as it is clear that China does have the capacity to absorb more. But two things are also clear: It cannot do so indefinitely and, the longer the problem persists, the harder — and riskier — it will be to unwind.
The obstacles are significant.
To that point, excess-capacity industries tend to be major employers and to dominate local economies. They are often poorly run and require both economic growth and new credit to survive. Under China's more complex system of government, the central government often does not have direct control over much of this excess capacity. (For example, the state is said to control no more than 50 percent of China's steel industry, limiting its ability to take direct action.)