Interpretation of the Implementation Measures for Capacity Replacement in the Steel Industry

Recently, the Ministry of Industry and Information Technology issued the "Implementation Measures for Capacity Replacement in the Steel Industry" (hereinafter referred to as the "Replacement Measures"). The relevant content is now interpreted as follows.
1、 What is the revision background of the "Replacement Method"?
The policy of replacing steel production capacity is an important measure to implement the decisions and deployments of the Party Central Committee and the State Council, promote the supply side structural reform of the steel industry, consolidate and enhance the achievements of overcapacity reduction, and prevent "inward competition". Since the implementation of the "Implementation Measures for Capacity Replacement in the Steel Industry" (formerly Ministry of Industry and Information Technology [2021] No. 46), it has effectively promoted industry transformation and upgrading, structural adjustment, layout optimization, and mergers and acquisitions. But with the changing development situation of the industry, the supply-demand relationship is facing new challenges, and the transformation and upgrading of the industry and high-quality development have put forward new requirements for the policy of capacity replacement. To this end, we have revised the capacity replacement method in accordance with the new situation and requirements of industry development, improved and refined policy measures, played a guiding role in policy differentiation, enhanced the precision level of capacity governance, and accelerated the promotion of reduction and quality improvement in the steel industry.
2、 In what aspects has the 'Replacement Method' been revised?
The 'Replacement Measures' have further tightened the requirements for capacity replacement, highlighted differentiated policy guidance, and strengthened supervision and management requirements. The main content of the revision is as follows: firstly, to increase the replacement ratio. The replacement ratio of national ironmaking and steelmaking capacity shall not be less than 1.5:1, and the merger and reorganization replacement ratio shall be increased to not less than 1.25:1. The second is to gradually eliminate capacity exchange between different enterprises. Set a 2-year transition period for capacity replacement between different enterprises; After the transition period, capacity transfer can only be achieved through substantive mergers and acquisitions. The third is to set an expiration date. The clear plan is valid for 24 months. Fourthly, standardize the equipment construction of stainless steel enterprises. The quantity and volume of melting alloy induction furnace equipment constructed by stainless steel enterprises must match the needs of their electric furnace or converter processes, in order to prevent enterprises from abusing the name of melting alloy to build induction furnaces and increase steelmaking capacity. The fifth is to support high-end and green development. Differentiated replacement ratios can be implemented for the construction of low-carbon smelting equipment such as hydrogen metallurgy, electric furnaces, and special steel enterprises with restricted or below electric furnaces. The sixth is to increase the closed-loop management of capacity replacement plans. The provincial industrial and information technology authorities are responsible for organizing and verifying the implementation of the capacity replacement plan, conducting annual self inspections of the implementation situation, and submitting self inspection reports. Seventh, strengthen policy linkage. Strengthen policy coordination with the National Development and Reform Commission and the Ministry of Ecology and Environment in areas such as environmental impact assessment, pollutant discharge permits, energy conservation review, and carbon emission assessment, and form a departmental synergy.
3、 Why insist on using the "filing list" as the basis for replacement?
The "filing list" refers to the list of smelting equipment in the steel industry that was submitted to the State owned Assets Supervision and Administration Commission of the State Council and provincial governments for filing the implementation plan of reducing production capacity in 2016. It is an important basis for "reducing production capacity" in the steel industry. Using the "record list" as the basis for capacity replacement is a specific requirement for consistently implementing various deployments of supply side structural reform.
4、 What types of mergers and acquisitions can enjoy differentiated trade in policies?
The "Replacement Measures" stipulate that after 2 years from the implementation of these measures, iron and steel production capacity between different enterprises (groups) shall not be replaced, and can only be integrated and transferred through substantive mergers and acquisitions. At the same time, in order to avoid enterprises exploiting policy loopholes through false mergers and reorganizations, the "Replacement Measures" have put forward specific requirements for mergers and reorganizations: "Steel smelting enterprises shall, in accordance with laws and regulations such as the Company Law, achieve actual control, complete changes in legal person or legal person affiliation, equity relationship, actual controller, articles of association, etc., but not including the merger and reorganization of existing iron smelting, steelmaking and other processes (workshops) into multiple legal persons by the same enterprise (group), or the merger and reorganization of different legal persons within the enterprise (group). Among them, if the iron smelting and steelmaking processes belong to the same enterprise (group), are located in the same production plant area, and share public auxiliary facilities, but belong to different legal persons, the iron smelting and steelmaking processes must be merged as a whole during the merger and reorganization. It should be noted that 'zombie enterprises' The production capacity belongs to long-term shutdown capacity and cannot be used for capacity replacement.
5、 Why increase the validity period of the capacity replacement plan?
At present, the overall trend of revising the "Replacement Measures" is becoming stricter, and the replacement ratio is further increasing. However, there are still many capacity replacement plans that have been announced but have not yet started construction. The long-term existence of these plans will seriously affect the implementation effect of the capacity replacement policy. The "Replacement Measures" stipulate that the validity period of the capacity replacement plan is 24 months, during which the project registration, energy conservation review, carbon emission evaluation, environmental impact assessment and other procedures must be completed, and construction must officially commence. Among them, for capacity replacement plans announced before August 23, 2024, project filing, energy conservation review, carbon emission assessment, environmental impact assessment and other procedures must be completed within 24 months from the implementation of these measures, and construction must officially commence; For the announced capacity replacement plan, if there is a situation of splitting production capacity and some production capacity has not been implemented in specific construction projects, the production capacity that has not been implemented in specific projects through capacity replacement within 24 months after the implementation of this method will be automatically invalidated.
6、 How to change the announced capacity replacement plan?
During the implementation process, considering that some enterprises' capacity replacement plans need to be changed, we have integrated the requirements of the Ministry of Industry and Information Technology's original document [2021] No. 46 for capacity replacement plan changes, inter provincial replacement, etc., and further clarified them. According to the "Replacement Measures", if there are changes in the model, quantity, or production capacity of smelting equipment to be built or withdrawn from the announced capacity replacement plan, or if there are changes in the construction project enterprise or the province (region, city) where it is located, the construction project enterprise must formulate a new capacity replacement plan in accordance with these measures. If it involves cross provincial (region, city) replacement, a capacity transfer plan should also be formulated; For the capacity replacement plan that has been announced, if there are changes in the name of the construction project enterprise, the construction location within the province, etc., but the proposed or withdrawn smelting equipment model, quantity, capacity, etc. have not undergone substantial changes, the construction project enterprise must notify the provincial industrial and information technology competent department in writing.
7、 How to achieve orderly connection between new and old policies?
In order to maintain the continuity and stability of the steel production capacity replacement policy, the "Replacement Measures" propose handling principles for possible situations that may arise during the process of connecting new and old policies, which are divided into four categories: the first category is those that have been announced, publicized, or the enterprise has officially submitted the production capacity replacement plan to the provincial industrial and information technology competent department before August 23, 2024; The second category refers to enterprises that have already announced, publicized, or formally submitted their capacity transfer plans to the provincial industrial and information technology authorities before August 23, 2024, but have not yet announced or publicized their capacity replacement plans; The third category refers to those who have signed steel production capacity replacement (transfer) contracts before August 23, 2024 but have not publicly announced or announced their production capacity replacement or transfer plans; In the fourth category of capacity replacement plans announced before August 23, 2024, some project construction content has been implemented and changes need to be made to the unimplemented parts.