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Economy

China shed 40%-plus more steel capacity than planned in 2016

Moves lifted domestic earnings and responded to foreign critics

Miao Wei, China's industry and information technology minister.

BEIJING -- China eliminated 65 million tons of crude steel production capacity last year, blowing past its original goal of 45 million tons by more than 40%, as part of an ongoing campaign and in answer to criticism from abroad.

Miao Wei, minister of industry and information technology, reported the reduction Friday.

Annual crude steel capacity came to around 1.2 billion tons at the end of 2015, making last year's cuts amount to a roughly 5% reduction.

The administration of President Xi Jinping has made cutting capacity a priority, and local officials have vied for the central government's approval by pushing businesses in their jurisdiction to make big reductions. The major steelmaking provinces of Hebei and Liaoning both slashed capacity.

Companies have also been consolidating facilities amid an industry reshuffle. China Baowu Steel Group, recently born from the merger of the state's Baosteel Group and Wuhan Iron and Steel with the central government's backing, has accelerated the scrapping of old equipment. As a result, the price of major steel materials used in construction had risen to 70-80% of year-earlier levels at the end of 2016, and steelmakers' total profits tripled on the year.

The reduction also lifted steel prices overseas, showing other countries that China was responding to their requests to curb production. The government intends to keep accelerating the cuts. It left itself some wiggle room with a plan to eliminate 100 million tons to 150 million tons of capacity by 2020 but is now explicitly aiming near the top of the range with a target of 140 million tons.

Miao also commented on U.S. President Donald Trump's pressuring of companies to move production to American shores. "Businesses place their factories in line with low costs, market size and the supply chain," he said. "It's not for governments to dictate."

The government is keeping a close eye on Trump's economic policies, "but they won't affect the growth of the Chinese manufacturing sector," Miao said, noting that "factory placement doesn't change based on the whims of a few people."

"China's liberalization policy is here to stay and will continue to encourage many foreign-owned enterprises to expand operations here," he said.

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