The Central Economic Work Conference held over the weekend has mapped out a blueprint for China’s economic development in 2016. Topping the reform tasks is slashing overcapacity in many of the country’s manufacturing sectors including steel and coal. For a look at how China plans to do that, we bring in CCTV’s Zhong Shi.

Q1. 2015 is now drawing to an end. Give us a review of how the steel and coal sectors have been doing this year.

A1. 2015 hasn’t been kind to either sectors, and they know all about overcapacity. The coal sector has seen a drop in both production and sales. In the first 9 months this year, coal production was down 4.6% year on year; sales, down almost 5.6%. Too much surplus has driven prices down 30% to be exact since the start of the year.

Now coal prices are about the same as 11 years ago. It’s the same bleak picture for steel. It’s estimated that steel consumption will be 668 million tons for all of 2015, down 4.8% year on year. That would mark the first drop in yearly steel consumption since 1995. Falls in demand from the construction and mechanical industries have contributed to this drop.

At one point this year, steel was sold at less than 3.2 yuan per kilogram. It was cheaper than the price of cabbage at the time which shows just how much surplus there is. With this domestic reality, some steel companies are eyeing opportunities abroad. Let’s take a look at this report from CCTV’s Ning Hong. Opportunities outside China may provide a glimpse of hope for steel manufacturers, but the market at home remains a disappointing one.

Q2. You talked about how addressing this problem tops next year’s economic agenda. How does China plan to do that？

A2. The companies in these sectors take up large resources that could otherwise be utilized by newer sectors that represent the future of China’s economy. The debt they have accumulated also poses a serious credit crisis. The first thing China plans to do is to come up with stricter standards for environmental protection, energy consumption and technology, forcing these companies to either change or be shut down.

Then conditions will be created for bankruptcies. This is especially necessary for companies that lack core competitiveness and advanced technology, which some call “zombie enterprises”. They need to be cleared out of business via prompt bankruptcy. That being said, it is advised that mergers and acquisitions be considered before bankruptcies.

Many compare the problem of overcapacity to a cancer in the Chinese economy. And it’s a painful process to correct it, one that inevitably leads to lay-offs. The Economic Work Conference has taken that into consideration, vowing to come up with tax and fiscal policies to help those who lose their jobs in that process. Back to you.