| TANGSHAN, China
TANGSHAN, China Feb 24 Reforming the bloated
steel sector in northern China's Hebei province is a key part of
Beijing's efforts to cut air pollution - but it is the market,
not the government, that is doing most of the work.
That undermines state media claims that the government is
going the extra mile to clean up Hebei, China's biggest steel
producer and home to seven of the 10 most polluted cities in the
country, environmentalists and industry experts said.
Stirred by growing public anger over smog that often spreads
to neighbouring Beijing, the government summoned Hebei's leaders
to a series of meetings in the capital last year and urged them
to draw up plans to slash steel capacity. They eventually agreed
on a target of 86 million tonnes, about 35 percent of current
capacity, by 2020.
With heavy smog again engulfing much of northern China since
last week, Beijing has sent inspection teams to Hebei and
elsewhere to see how authorities are responding, and the steel
sector is high on their list of targets.
But many mills are already near bankruptcy because of
slowing demand, plunging steel prices and a liquidity crisis
that would have forced them to shut anyway, experts said.
"They are only closing steel mills that are already dead,"
said Xu Zhongbu, chief of Beijing Metal Consulting and a veteran
industry advisor who works with steel firms in Hebei.
On the outskirts of Tangshan, a city of 7 million people
that makes more steel a year than the whole of the United
States, the hulking cranes and chimneys at the Qingquan Steel
mill are frozen in inactivity. Workers unpaid for six months
went on strike in October and haven't returned.
Qingquan Steel is one of dozens of so-called zombie mills in
Tangshan, where authorities have been ordered by the provincial
government to draw up a list of plants to close so output can be
cut by 10.8 million tonnes this year.
"In Tangshan and other parts of Hebei, the private mills are
facing the most difficult time in their history," said Xu.
"Profits are poor and producers are all losing money - this has
nothing to do with environmental measures: it is the economy."
Tangshan's steel sector has long been dominated by hundreds
of small private producers taking advantage of vast local iron
ore and coal deposits as well as a building boom spurred by an
earthquake that flattened most of the city in 1976.
While Hebei had accounted for around a quarter of China's
steel output, production fell to less than 20 percent in the
last two months of 2013.
Huang Wei, a campaigner with environmental group Greenpeace
in Beijing who has studied the impact of Hebei's industries on
air quality, said targeting steel mills was the easy option
given the difficulties already facing the sector as China's
economy grows at a more moderate pace. The bigger challenge was
easing Hebei's dependence on coal, she added.
"Whether this target is too soft or not will depend on
whether the reduction is an outcome of the market or purely a
political task," Huang said.
"(The government) will face an even tougher situation after
it has picked low-hanging fruit like the steel industry."
Officials from Hebei and Tangshan declined requests to be
interviewed. The Ministry of Environmental Protection in Beijing
also did not respond to requests for comment.
State media has said anti-pollution measures are behind the
steel mill closures in Hebei, while local government
announcements also suggest it is entirely an environmental
matter when they say they are determined to shut mills and other
Hebei's 250-million tonne annual production capacity was
built on the back of cheap credit, soaring demand for
low-quality construction materials and the willingness of
growth-obsessed local officials to turn a blind eye to costly
The Hebei government's immediate target is to cut steel
capacity by as much as 15 million tonnes in 2014. Governor Zhang
Qingwei vowed last month to fire any official responsible for
even a tonne of extra capacity on their patch this year.
"It is very good for the local government because they can
avoid political trouble and meet their targets," said Xu,
referring to the work already being done by market forces.
Nevertheless, there has been some resistance.
An industry source said Tangshan had delayed an order to
shut down 3 million tonnes of outdated steel production capacity
at Tangshan Guofeng Iron and Steel, one of the city's biggest
producers, until next year because it was one of the few firms
to make a profit in 2013.
While the Qingquan plant was reprimanded last year by local
authorities no longer allowed to overlook environmental
violations, orders to install costly new pollution controls
would have made little difference to a facility with no access
to funds and already incapable of paying its employees.
Dozens of plants in Tangshan's steel district of Fengnan
have closed. Some still hope to get bank loans, while others are
hoping they can get compensation from the local government,
although there is no longer cash available to bail them out,
"There are many others that have closed even though they
haven't declared bankruptcy. They aren't formally shut because
of the financial implications - they might be in debt and the
banks would close in," said a senior iron ore trader based in
"We expect to see more closures this year."
(Editing by Dean Yates)