China raises bar for polluters in restructuring plan

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China's top economic planning agency on Tuesday published a detailed list of industries that it would encourage, restrict or ban, a blueprint that could have a far-reaching impact on investment activity in China over the coming years.

The 111-page list published by the National Development and Reform Commission ratcheted up the minimum size requirement for coal mines, oil refineries and steelmaking blast furnaces while lending support to alternative energy sources.

The list, an update of one published in 2005, will serve as a guideline for Chinese regulators in making policies on tax, bank credit, land and trade, and will also be a reference for Beijing to decide which foreign investors are welcomed.

On the hit-list, the NDRC said it would get rid of oil refineries with capacity of less than 40,000 barrels per day, on-grid coal-fired power generators of up to 100 MW and coal mines below 30,000 tonnes per year, according to the agency's website at http://www.ndrc.gov.cn/zcfb/zcfbl/2011ling/W02011042653852004931

3.pdf. Such efforts are part of a plan to clean up China's most polluting sectors, but also to increase efficiency by pooling control of many industries in the hands of a few state-backed champions and reordering the distribution of resources across China.

Definitely, the launch of the detailed plan is a good thing to help upgrade industrial structure and may push domestic firms to move up the value chain, which is also in line with Beijing's broader goal of transforming the economic growth model, said Sun Xuegong, an economist at a research institution affiliated to the NDRC.

But I think currently it is only a sketchy guideline and companies will have to wait and see more concrete steps, such as possible supportive measures or government subsidies.

Areas to be encouraged include nuclear power station construction and exploration of uranium as well as further development of advanced nuclear reactor technology, the NDRC said.

But China's past moves toward restructuring have sometimes had unintended consequences. The closure of small coal mines has turned China into a major coal importer, with a concomitant effect on world prices, and a crackdown on coal-fired power caused a run on diesel last winter, as big power users rushed to skirt the rules by using diesel-powered generators.

The favored list did not only include new energy, but also big coal mines of 1.2 million tonnes per year.

Eager to increase its capability in offshore oil and gas drilling and production, the government will encourage building jack-up drilling platforms able to operate in water depth of 120 meters or more, drilling vessels with working water depth of 1,500 meters or more, semi-submersible rigs for operating at 1,500 meters, 150,000-tonne floating, production, storage and offloading (FPSO) vessels, and large pipeline laying vessels.

Among the other projects to get a thumbs-up was gold mining below 1,000 meters, although gold mining in forests, farmlands and near rivers will be restricted, while the smallest gold mining projects will be banned.

With easy-to-reach gold lodes already discovered, gold miners in China are now drilling deeper to find new reserves. Many companies are already drilling at an average depth of 2,000 meters and a project in Shandong kicked off the country's first ultra-deep gold mine with a planned depth of 4,000 meters last year.

China will also restrict new projects for mining tungsten, molybdenum, tin, antimony, and rare earths.

For projects in sectors listed as to be encouraged, investors often find it easy to get government approvals, cheap bank loans and preferential tax treatment, whereas those out of favor are often the first to be cut off when power shortages force government rationing of electricity.

In some cases, the government will make exceptions, such as small oil refineries in less-developed areas of Xinjiang and Qinghai, which will be exempt from the national crackdown.

(Reporting by Tom Miles, Jim Bai, Polly Yam, Fayen Wong, Niu Shuping, Aileen Wang, Koh Guiqing, Judy Hua; Editing by Michael Urquhart)

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