These are hard times for China’s cement industry. Last week, the government issued a decree ordering officials to halt the development of new cement and plate glass capacity, as the industry gets dangerously close to a glut.
China's cabinet, the State Council, ordered this decree in October, anxious about growing levels of government and corporate debt, but government firms largely ignored it, but this time the central government is serious.
Part of the problem is that cement plants are generally in areas far away from the central government and offer generally undesirable postings for an ambitious cadre. A government official’s career depends on generating growth, so they have stayed focused on increasing GDP at all costs. This results in undesirable by-products, such as corruption and political patronage, say analysts.
Cement output grew 3.6 per cent in the first half of this year, while plate glass capacity grew 4.7 percent. “This trend, if not checked, will seriously interfere with efforts to reduce serious excess capacity,” ran a statement on the Ministry of Industry and Information Technology’s (MIIT) website.
“Total industrial capacity in cement and plate glass is still growing, but the industry-wide sales rate is in decline and accounts receivable are increasing,” the MIIT said, stressing there were to be no new projects in the sector “for any reason”.
Last year, Merrion pointed out how CRH has the lowest level of exposure to developing markets of its European peers, including HeidelbergCement, Lafarge and Holcim.
