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[Ferro-alloys.com]China unveiled a detailed overcapacity replacement policy on last Thursday that will promote cuts in the iron and steel, electrolytic aluminum, cement and glass industries.

In a key document last October, the State Council (cabinet) established the principle of replacing obsolete or excess capacity with an equal or smaller amount of new capacity. It said any region that wanted to establish new facilities in any of these sectors would have to shut outdated or excess factories before new lines would be permitted.

The idea was to create incentives for local governments to address concerns that despite years of talk about cutting excess production lines, new facilities were actually adding more capacity than was being eliminated. The result was unbearably high levels of capacity that squeezed manufacturers' profits.

For example, in 2011 and 2012, a total of 37 million metric tons of steel capacity was shut. But in those same years, 125 million tons of new steel capacity was built, according to the China Iron and Steel Association.

The latest plan hammered out by the Ministry of Industry and Information Technology will put the principle into practice.

First, the plan puts three economic hubs - the Beijing-Tianjin-Hebei region, the Yangtze River Delta and the Pearl River delta - into a category of their own. In these regions, new capacity will replace at least 1.25 times that much eliminated capacity.

In other regions, new capacity will replace old capacity on at least a one-for-one basis.

In early July, the MIIT announced the first batch of capacity to be closed, which covered 1,181 companies in 15 industries. Those facilities were told to close by Sept 30. More such lists are expected soon.

• [Editor:Mike.zhang]