KPMG: The Chinese Government Is Grappling With The Social Costs Of Steel Mill Closures

Getty/Sean Gallup

The restructuring of the Chinese economy continues with The Australian reporting this morning that the Chinese government is readying itself to close more marginal steel mills.

Peter Fung, KPMG’s head of Global China Practice, told The Australian that when the process of these closures would begin remains uncertain due to the “social consequences” of the closures which will flow from job losses.

Some of these plants are big plants. We all agree they need to be closed but how to deal with the social issues when that happens is something that needs a lot of discussion and negotiation at both the central and local government levels.

This needs to be addressed and I think the government understands it needs to be addressed. How long it takes to get an agreement I don’t know, but this will happen.

This delay, in order to work through the impact on communities and the economy, is good news for countries such as Australia with big trade ties with China and sectors, such as iron ore, which rely on Chinese growth. It underlines the Chinese President’s and Premier’s commitments to long-term structural change in the economy that spreads the benefits of growth.

While this suggests that there is less chance of a big bang stimulus package, it also means targeted stimulus packages – such as the recent announcements about rail and an opening up of the interior – can be used to ensure that economic growth in China remains both solid and well-spread.

It’s a recipe for slightly slower but sustainable growth in China and it’s good news for the Australian and global economies.

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