BEIJING • China's plan to slash crude steel production capacity could eliminate 400,000 jobs and may fuel social instability, according to the state-run metals industry consultancy.
Steel production capacity will be cut by 100 million tonnes to 150 million tonnes, China's State Council announced on Sunday without specifying a timeframe.
That will translate into as many as 400,000 lost jobs, said Mr Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, according to a report by the official Xinhua News Agency on Monday. China will raise funds to help the dismissed workers, Xinhua said.
China's leaders have vowed to reduce excess industrial capacity and labour in state enterprises even as they battle the slowest growth in a quarter of a century. They are grappling with a delicate balancing act as they strive to restructure the economy away from investment-led growth without tipping it into a deeper slump.
"This is a positive sign for China's adjustment to a slower, more efficient economy, but we should wait to see how many of these job cuts are real," said independent China analyst Andrew Collier.
According to Xinhua, Mr Li said even more workers will be affected across related industries, and could potentially become a destabilising force.
Mr Rajiv Biswas of IHS Global Insight in Singapore said China's steel producers have faced falling steel prices and the industry lost an estimated US$12 billion (S$17.2 billion) last year. The sector faces a long period of restructuring and consolidation, with excess capacity of about 300 million tonnes.
According to the State Council Coal, production capacity is to be cut on "a relatively large scale" too.
The World Steel Association said on Monday that global steel production fell the most in six years in 2015, with China accounting for the biggest decline. Steel output in the world's largest producer and consumer of the metal shrank by 2.3 per cent last year, the biggest drop in 25 years.
Three million employees face layoffs if the steel, coal, cement, aluminium and glass industries cut production by 30 per cent over two to three years, China International Capital said this month.
"If the Chinese government is serious about tackling overcapacity, though, they ultimately need to shut down all money-losing firms, which would lead to millions in additional unemployment," said Professor Victor Shih, University of California in San Diego, who studies China's politics and finance.
"I see the shutdown in the steel sector as a positive but modest first step," he added.