Local governments in China should strike the right balance between economic growth andreforms. Else, development would be slow and lack balance, preventing the nation frommeeting its capacity reduction targets, economists and analysts have warned.
"Efforts to cut overcapacity lagged far behind expectations in the first seven months (of thisyear), with notable imbalances in progress across regions and factories," said Xu Shaoshi,head of the National Development and Reform Commission.
Other experts said regional disparity in development has a lot to do with different localeconomic structures and hurdles to efforts to cut overcapacity.
But, local governments' attitudes also play an important role, they said.
Data from the Ministry of Industry and Information Technology shows that the nation's majorsteel production bases, including Hebei, Liaoning, Hubei provinces, accomplished only 10 to35 percent of yearly targets (for cuts in capacity), while Inner Mongolia autonomous region,Jilin and Heilongjiang provinces have yet to make any progress.
Meanwhile, some regions achieved remarkable progress. For instance, Jiangsu has finished80 percent of its set work already, while Beijing accomplished more than 50 percent.
"It's a lot easier for developed places, which have been relying more on the services sector foryears, to finish tasks and drive growth," said Wang Youxin, an economist with the Institute ofInternational Finance, a think tank under the aegis of Bank of China. "They face light workloadin the initial phase and fewer problems related to restructuring."
For instance, Jiangsu's target for this year was to cut its steel capacity by 3.9 million tons,which is way lower than Hebei province's target of 17.36 million tons.
Xia Nong, an official with the NDRC, said that restructuring is the future trend.
"Restructuring would help resolve debt issues, and the government would help companies gothrough the process."
An industry insider who sought anonymity said provinces' different economic structures showthat less-developed regions tend to have clusters of heavy industries, and fall far behind ingrowth, dragging down the nation's pace.
"There's nothing much that a weak performer can learn from others," Wang said, referring tothe case of Hangzhou Iron & Steel Group Company, in Zhejiang province, that has beenrecently appreciated by the NDRC.
The company shut down a unit with a capacity to produce 4 million tons of steel per annumand relocated 12,000 workers in only 150 days.
High value of land in Hangzhou would help the company repay its debts. The government hasless pressure to relocate workers, Wang said.
Given the current strong economic downward pressure, "some (local) governments wouldrather stick to the old habits of fueling the old engine (of growth) at the expense of reforms",he said.
Economic growth in the lagging northeast rustbelt region has a ticked up a tad in the first halfof this year, he said.
Data from the NDRC shows that the region's economy grew 2.2 percent year-on-year in theJanuary-June period.
But economic growth fueled by sectors riddled with overcapacity is not sustainable given theweak domestic demand, said Zhao Changwen, a senior official with the State Council'sDevelopment Research Center, a government-backed think tank.
Zhao suggested that regions with heavier workloads should lower local GDP targets in orderto create an appropriate macro environment.
"Less importance placed on economic growth helps prevent governments from approving anynew projects that would expand steel or coal capacity," said Zhao.
Zhang Lin, a senior analyst with dz18.com, an e-commerce platform for the steel supplychain, said that with less pressure to boost growth, local governments are more likely to seekmore targeted solutions and accelerate the pace of development.
"Local governments know better than anyone else where (the real) problems lie," said Zhang. "It (the ability to solve problems) depends on their attitudes to implementing reforms."