China Focus: Fund to help those made redundant by overcapacity cut

China will raise funds to help workers reestablish themselves should they lose their jobs when coal and steel firms close amid campaigns to cut overcapacity.

Industrial closures are on the horizon. Crude steel production capacity will be cut by 100 to 150 million tonnes, while coal production will be reduced by "a relatively large amount," the State Council said in a statement released Sunday without elaborating on a time frame.

The steel production slash could translate into the loss of jobs for up to 400,000 workers, estimated Li Xinchuang, head of China Metallurgical Industry Planning and Research Institute.

Li said more people will be affected in the upstream and downstream industries.

"Large-scale redundancies in the steel sector could threaten social stability," said Li.

In the coal sector, 7,250 mines with outdated production capacity have been closed in the last five years.

A large number of coal workers are expected to be affected by future capacity cut, although the State Council did not specify the scale.

To deal with looming redundancies, an "industrial restructuring fund" was initiated on Jan. 1, pooling money from factories across the nation based on their power consumption.

Brokerage Shenwan Hongyuan Securities estimates that the fund could draw in 46.8 billion yuan (7.2 billion U.S. dollars) a year.

"As required by the State Council, related departments are formulating rules on the use of the industrial restructuring fund," said Jiang Zhimin, vice head of China National Coal Association.

"As far as I'm concerned, the bulk of the fund will be allocated to redundant workers," said Jiang.

The fund will be partly used to compensate laid-off workers, according to Sunday's State Council statement.

The State Council called on enterprises to think outside the box and find ways to reduce redundancies and compensate laid-off workers.

The government is also encouraging redundant workers to start their own businesses, with tax breaks and other preferential policies.

A previous round of economic restructuring in the 1990s, when China was transforming from a planned economy to a market economy, saw tens of millions of people losing their jobs, particularly those employed by state-owned enterprises.

Although many redundant workers started businesses, the rising unemployment created social problems.

In the current round of economic restructuring, inviable and non-competitive "zombie enterprises" are being targeted by the government, as oversupply has hammered steel prices below the cost of cabbages and beaten coal price to a multi-year low.

This time, the government will pay more attention to those who lose their jobs.

"We must properly deal with redundancies," according to the State Council statement.

The leadership attaches great importance to job creation amid the economic slowdown. Now, a low unemployment rate provides room for the capacity glut reduction.

Surveyed unemployment rate in major Chinese cities was around 5.1 percent in 2015, which remained at a low level, compared with an average of 6.8 percent for the 34-member Organization for Economic Cooperation and Development (OECD) last July. Endi