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China's Hebei needs state funding to aid restructuring: government research

SHANGHAI (Reuters) - China's Hebei province needs more central government aid to back its efforts to cut industrial capacity and restructure its economy, researchers with the country's state planning agency said in a report published on Monday.

The Policy Research Office of the National Development and Reform Commission (NDRC) said Hebei, China's biggest steel-producing region, was facing heavy financial pressures when it came to resettling laid-off workers.

The staging of the 2022 Winter Olympic Games in parts of Hebei has also widened the "funding gap" as the province rushes to meet its reforestation targets and plant nearly 100,000 acres of new trees around Olympic venues, the report said.

As the economy slows, local firms were struggling to get access to financing, with the use of domestic loans and foreign capital dwindling this year, the researchers said after a two-day meeting with government and industry officials in the steel heartland of Tangshan last week.


They said local governments also needed to overcome their resistence to foreign investment, which will play an important role in the country's restructuring process.

Steel accounts for about a quarter of Hebei's economy, but the province is in the middle of a program aimed at cutting as much as 86 million tonnes of annual crude steelmaking capacity over 2013-2020 as part of the country's efforts to tackle chronic overcapacity and smog.

The province plans to shed 14.22 million tonnes of steel capacity in this year alone.

As well as closing capacity, Hebei aims to "relocate" production by investing in facilities abroad, with the Hebei Iron and Steel Group already acquiring plants in Serbia and South Africa.

The NDRC researchers said constraints on the sector were helping to raise standards and create firms that had "genuine global competitiveness", but more could be done to "optimize overseas steel product chains" by cooperating with countries in Africa or the "One Belt One Road" region, it said.

Hebei province's economy grew 6.6 percent in the first half of 2016, slightly below the nationwide rate of 6.7 percent, and local officials have repeatedly urged Beijing to provide more financial and policy support to help ease the pain of restructuring.

The NDRC researchers called on the government to draw up preferential policies aimed at stimulating new industries, addding that it should also look into cutting taxes and offering direct subsidies in order to encourage innovation.

(Reporting by David Stanway; Editing by Kim Coghill)