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The Ministry of Land and Resources Will Reject Applications for Land Acquisition

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Core Tip: In another sign of the government's resolve to tackle the problem of excess industrial capacity, the Ministry of Land and Resourc

In another sign of the government's resolve to tackle the problem of excess industrial capacity, the Ministry of Land and Resources will reject applications for land acquisition by companies in sectors with low capacity utilization ratios.

Those industries are steel, cement, electrolytic aluminum, plate glass and shipping.

"The ministry will clear the land used by projects involved in industries with excess capacity and launch a long-term, efficient system to prevent illegal land use by related companies," Minister of Land and Resources Jiang Daming was quoted as saying by the China Securities Journal.

The capacity utilization of the shipping industry in the first three quarters was about 55 percent, 20 percentage points lower than in 2012.

As the burden of excess capacity intensifies, all central government departments with responsibility for the issue have announced measures to bring the situation under control.

On Oct 6, the State Council - China's cabinet - released guidelines on addressing the problem. The cabinet said that it was "essential" to prevent the further expansion of capacity by companies in troubled industries.

Another document was issued jointly by 10 departments, including the National Development and Reform Commission, the Ministry of Industry and Information Technology and the Ministry of Supervision.

That document said that the government is urging companies to avoid repetitive construction of excess capacity.

A conference call was held by the NDRC and the MIIT on Nov 4 to follow up on guidelines from the central government on tightened restrictions for companies trying to launch new projects.

"Excess capacity is a common market phenomenon, which will have the consequence of driving out the worst enterprises while companies that have advantages will survive," said Chen Naixing, a researcher at the Institute of Industrial Economics of the Chinese Academy of Social Sciences.

Chen added that the government is trying to control the situation, but the problem will eventually be resolved by the companies themselves as they restructure and modernize.

At the meantime, companies in the target industries are struggling with falling production.

"Most small and medium-sized steel companies are experiencing their toughest times, with profits at the lowest in the past three years as market demand and prices keep declining rapidly," said Wu Yue, a manager at Shanghai Zaiwang Steel Co Ltd.

In April, the company cut output by about 15 percent, and it's desperately waiting for a market recovery.

"The government's tightening of credit for infrastructure construction has curbed the start of new projects, which directly cuts demand for raw materials, especially steel," said Wu.

Wu added that an effective solution is to encourage mergers and acquisitions in the industry, which will improve market concentration and competitiveness.

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