China to close factories in energy drive

(News Today) - China plans to close outdated factories owned by more than 2,000 companies in heavy industries in the clearest sign yet of Beijing's determination to meet its low energy targets even at the expense of economic growth.

Beijing pledged five years ago to reduce energy intensity, a measure of energy consumed per unit of gross domestic product, by 20 per cent by the end of 2010. But the government has struggled to meet that goal.

The latest policy statement underscores how heavy industry, which accounts for more than half the country's energy demand, will bear the brunt of the crackdown. The move is aimed at promoting energy conservation and speeding the shift of China's economy away from energy-intensive industries.

Beijing said it would target 18 industries, including steel and cement, and took the unusual step of listing each company affected and the amount of production it must close by the end of September. The list included subsidiaries of large state-owned companies such as Chinalco, Angang Steel and the Shougang Group.

Those companies that fail to comply could have their business licences revoked or their power cut off. Banks would be forbidden from extending credit to the offending parties.

Some observers remain sceptical that the latest crackdown on heavy industries will result in permanent capacity closures, suggesting that production facilities might be closed this year only to reopen in the spring.

"What we've seen historically is that these threats are used for a short period of time while the situation is hot," an analyst at Macquarie said, citing similar efforts in 2007 and 2008.

Analysts said China's industrial growth could slow during the second half as the government rushes to meet its energy targets by the end of the year.

"If they're going to achieve this target of lowering energy intensity by 20 per cent by year-end, this could shave 1.5 per cent off industrial production growth," Wang Qing, China economist at Morgan Stanley, said.

UBS recently estimated that economic growth could fall by two percentage points in the second half of this year if China enforces the energy targets.

China's previous efforts to reduce energy consumption were thrown off course by the $586bn stimulus package launched in 2008.

The stimulus and accompanying easy credit fuelled construction, in turn driving up demand for energy-intense products such as steel, and so boosting heavy industry. As a result, China's energy intensity worsened in the first quarter of this year after years of continuous improvement.

At the end of 2009, China had reduced energy intensity by 15.6 per cent from 2005 levels, but energy intensity increased in the first quarter of this year by 3.2 per cent.

Source : CNN

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