Abstract

Structural reform in China has already proved to be efficient for steel, coal and now aluminium industries: closure of outdated capacity resulted in more efficient use of natural resources, commodity prices’ rebound, recovery of profitability, and launch of a big number of debt-to-equity swap deals. To put some numbers, concentration of the top-10 aluminium producers accounted for 65% in 2016 and, more importantly, almost 4.5 Mt of aluminium operating capacity were idled in 2015. However, the mission of tackling oversupply in the aluminium industry is still far from completion, as in the year 2016, net increase of operating capacity equaled 6 Mt for aluminium (20% growth of total running capacity) and 13.56 Mt for alumina (25% growth YoY), thus negating previous efforts.

Opinions of the Chinese government are perfectly reasonable for the future healthy development of the industry, if experience of other developed countries taken into consideration. In the late 80s – early 90s Japan did not manage to address overcapacity problem properly that resulted in unsustainable debt load and the long lasting economic recession. The USA, by contrast, stopped capacity expansion at the right time, focused on production of secondary metal, as aluminium is 100% recyclable, and shifted towards production of high-end downstream products. Industry experts point out that the growth of aluminium consumption will inevitably slowdown in China and that it will repeat the path of USA and South Korea with the consumption being stabilized at 20 kg of metal per capita (currently China has exactly 20 kg per capita).

Chinese government is also paying a lot of attention to social responsibility, environment protection and sustainability issues. China is now widely considered as a true leader of the global combat against climate change, and the carbon market (ETS) planned for launch in the second half of this year is a main instrument of meeting ambitious goals of China under the Paris Agreement. Certain essential terms of the market are yet to be decided, but the government needs to ensure that the rules of the market stimulate adoption of sustainable approach in doing business: promote energy efficiency, green production technologies, decrease coal consumption and shift to non-fossils growth. Properly set principles of ETS will allow the market to automatically adjust and regulate itself and shift economy towards green development mode.