How to resolve the overcapacity when the steel industry is facing a dilemma

China's economic development is facing the problem of excess capacity, the most typical of which is the steel industry. China Steel currently has approximately 300 million tons of excess capacity. According to data from the China Iron and Steel Association, in the first three quarters of this year, large and medium-sized steel companies lost 28.122 billion yuan, while the same period last year was profitable.

The overcapacity of China's steel industry is mainly caused by the strong demand in the past ten years. In 2008, the rescue policy mainly focused on real estate and infrastructure investment, as well as abundant liquidity, stimulated production capacity investment in the steel industry, and partly caused the current predicament of overcapacity. To a considerable extent, it is China's repeated stimulus to maintain high-speed growth that has given the steel industry confidence, but this time the situation has changed: the Chinese government does not intend to continue the stimulus.　　 　　

However, when China has overcapacity, it will not be eliminated in time, because most industries with overcapacity are mainly controlled by state-owned enterprises. Moreover, they are distributed in different regions, which will lead to a dilemma: no local government is willing to take the initiative to let steel companies reduce production and close down. For example, Hebei Province, a major steel province, eliminated several million tons of production capacity, while Jiangsu Province increased production capacity by almost the same amount. In the short term, this will be a huge loss to Hebei. The government has to bear the decline in GDP, the increase in unemployment and the decrease in fiscal revenue.　　In fact, steel companies, local governments, and banks have formed a community of interests, and they will lose everything. Once the companies decide to reduce production or close down, the three will suffer huge losses. Then, the best strategy is to continue production, and through local government subsidies, tax cuts, and product transformation to cater to export tax rebates, etc., to maintain survival by continuing to increase leverage. (Guide: Tool selection needs to consider the efficiency and accuracy of tool processing)

　 The accumulation of overcapacity due to local government protection has caused more and more zombie companies, which has become a major burden to China's economic development, and has accumulated more and more financial risks. This situation has happened before. In the 1990s, inefficient state-owned enterprises formed huge debts. If the reforms of state-owned enterprises were not carried out in a timely manner and the accompanying treatment of non-performing assets and a series of financial reforms, the Chinese economy would not have a new century. Continued prosperity.　　 　　

In dealing with the problem of excess capacity in the steel industry, local governments are in a prisoner's dilemma. Whoever cuts production or shuts down enterprises will bear the losses, and those local governments that have not taken measures will benefit. In this situation, market-oriented digestion methods have not received enough attention. For local governments and enterprises, whoever can endure to the end is the winner.　　 　　

Therefore, to resolve the problem of excess capacity, it may be necessary for the central government to come forward to break the situation of the community of interests of local governments, banks and enterprises, so that enterprises with excess capacity can be shut down or reorganized in a market-oriented manner, and each entity can reasonably share costs. The central government also has to bear a certain cost. In the process of shutting down or reorganizing enterprises with overcapacity, the central government will also urge local governments to formulate plans for unemployed employees. Only in this way can the current deadlock be resolved.

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