Chinese steelmaker to cut 50,000 jobs

A steel plant in Anhui province in 2011, before the sector fell into a slump. The Chinese government has announced plans to cut steel production by as much as 150 million tonnes within five years to tackle overcapacity, as part of wider efforts to sh
A steel plant in Anhui province in 2011, before the sector fell into a slump. The Chinese government has announced plans to cut steel production by as much as 150 million tonnes within five years to tackle overcapacity, as part of wider efforts to shore up growth.PHOTO: REUTERS

Mass layoffs, as Beijing reins in industrial overcapacity, could set off widespread unrest in the country

BEIJING • One of China's largest steelmakers plans to axe up to 50,000 jobs, said its chairman, as the country struggles to rein in overcapacity while growth slows in the world's second-largest economy.

Comments by Mr Ma Guoqiang, the head of state-owned Wuhan Iron and Steel, provide a stark illustration of the challenges facing Beijing as it seeks to retool the economy while avoiding social unrest - anathema to the leadership.

The company's steel unit currently has 80,000 staff but might retain only 30,000 of them, Mr Ma said on the sidelines of the National People's Congress, the country's rubber-stamp Parliament.

"Probably 40,000-50,000 people will have to find other ways forward," he told people.com.cn, a news portal run by the official People's Daily, according to a transcript on the website.

Last year, China's economy grew at its slowest pace in a quarter of a century.

Its outlook remains bleak, with the government last week lowering its growth target for this year to 6.5-7 per cent, down from "about seven per cent" previously.

The authorities have prioritised cuts in borrowing, overcapacity and inventory, to maintain growth and make it more sustainable.

The government has announced it aims to cut steel capacity by up to 150 million tonnes within five years.

Much of China's production is already inactive. Wuhan Iron and Steel is running at only 70 to 75 per cent capacity, Mr Ma said.

Mr Zhang Wuzong, who heads Shiheng Special Steel Group in Shandong province, said the targets laid out in an action plan in February would not be enough to tackle a surfeit of capacity estimated at around 400 million tonnes, especially amid a decline in domestic steel demand.

"China's steel production is actually 800 million tonnes, and it should be at the 1.1 billion or 1.2 billion level, so getting rid of 100 million or 150 million isn't any good - 300 million or 400 million would be more appropriate," he said.

He said he expected domestic steel output to fall by around 5 per cent a year in the next five years, ending the decade at around 600 million tonnes. Production last year was 803.8 million tonnes, after having dropped for the first time since 1981. The sector now acknowledges that output has peaked.

Global steel prices have plunged amid a worldwide glut, and both the United States and the European Union, whose own steel industries are deeply troubled, say China has sold underpriced steel in their markets.

China's human resources and social security minister estimated last month there would be 1.8 million layoffs because of restructuring in the coal and steel industries, without giving a timescale. The prospect raises the spectre of mass unemployment and protests as a result.

To ease such blows, Chinese Premier Li Keqiang said on Saturday that the central government would allocate 100 billion yuan (S$21 billion) over the next two years for a labour resettlement fund.

Wuhan Iron and Steel began operations in 1958 - it was the first large steel plant built in Communist China. In 2014, it was China's fifth-largest steelmaker by output, said the World Steel Association.

Mr Ma did not specify a timeframe for the layoffs.

He said older workers would be allowed to retire early, while some staff would be offered posts at non-steel affiliates, and the company would subsidise those who had to seek jobs elsewhere.

AGENCE FRANCE-PRESSE, REUTERS

A version of this article appeared in the print edition of The Straits Times on March 12, 2016, with the headline 'Chinese steelmaker to cut 50,000 jobs'. Print Edition | Subscribe