The low-end papermaking industry has become a key target of the government's new measures to cut industrial overcapacity.

Nationwide, 67 companies involved in the papermaking industry were told to cut their capacity, according to a statement from the Ministry of Industry and Information Technology released on Monday.

The move comes one month after the ministry launched the first series of overcapacity cuts in industries including copper smelting, electrolytic aluminum and cement.

Earlier this year, the government decided to make greater efforts to tackle overcapacity, a serious problem that has plagued China's industrial sector for years.

"In order to resolve overcapacity conflicts and prevent air pollution, we've decided to strengthen efforts to complete the task of eliminating excess capacity during the 12th Five-Year Plan period (2011-15) one year in advance," said Miao Wei, the minister of industry and information technology.

In 2011, China released targets for a reduction in overcapacity in 19 industries across the nation, including iron smelting, cement, printing and dyeing, flat glass, papermaking and shipbuilding.

The production cuts in the papermaking sector this year are slated to be 6.35 million tons, according to the ministry.

The ministry required the 67 low-end papermaking companies to phase out outdated production capacity and facilities by the end of September. The deadline to eliminate excess capacity is the end of the year.

Authorities won't allow the companies to transfer the overcapacity to other facilities, according to the ministry.

"Production overcapacity has become the biggest challenge of the macro-economy adjustment for the government's new leadership over the next five years," the Financial Times quoted Shen Jianguang, chief economist for China at Mizuho Securities Asia, as saying.

"Rising excess capacity has reduced companies' expectations on investment returns, which resulted in the closure of some factories, an increase in unemployment and a negative effect on residents' revenues and consumption behavior," said Shen, adding that all of these factors will bring pressure to the country's economic development and will worsen the economic slowdown.

According to a report from the Ministry of Industry and Information Technology, China's steel industry has excess capacity of more than 160 million tons, while the figure for the cement sector is above 300 million tons.

"Overproduction has led to price wars in the coal industry because coal prices have been declining for several months this year," said Zhang Zifei, chairman at Shenhua Shendong Coal Group Corp Ltd.

"Coal prices may not increase in the second half of the year and we plan to further curb production costs to offset the negative market effect," said Zhang.

baochang@chinadaily.com.cn

(China Daily 09/04/2013 page16)