China\u2019s industry ministry has revealed new rules on replacing steel production capacity. The changes, which end a nearly two-year suspension of new approvals, represent the most significant overhaul of the policy since 2021.<\/p>\n\n\n\n
National steel policy has, since 2014<\/a>, sought to control overall capacity and encourage upgrades by requiring the retirement of older capacity before new facilities can be built.<\/p>\n\n\n\n The revised measures<\/a>, announced on 18 May, mean even more capacity must be retired before new capacity is added. They also tighten eligibility requirements and place new restrictions on the use of dormant capacity.<\/p>\n\n\n\n The changes come at a pivotal moment for China\u2019s steel industry. After a decade of restructuring and upgrading, the sector is facing slower demand growth<\/a>, weak profitability and mounting pressure to reduce emissions. Steelmaking remains responsible for around 16% of national carbon emissions and is one of the toughest industries to decarbonise.<\/p>\n\n\n\n The latest reforms, therefore, raise a broader question: can a policy originally designed to manage capacity also help accelerate the steel sector\u2019s low-carbon transition?<\/p>\n\n\n\n China\u2019s capacity replacement has evolved over the past decade from a mechanism to manage industrial capacity into a broader policy tool supporting industrial upgrade, environmental improvement, and, increasingly, decarbonisation.<\/p>\n\n\n\n The mechanism emerged from two major policy priorities that took shape in 2013. That is, efforts to tackle severe industrial overcapacity<\/a> and a growing national campaign to improve air quality<\/a>.<\/p>\n\n\n\n When the first steel capacity replacement rules were introduced, in 2014<\/a>, they required an amount of existing capacity \u2013 ideally older and more polluting assets \u2013 to be shuttered before new capacity could be built. In key air-pollution control regions, the ratio was 1.25 tonnes retired for every 1 tonne added. Everywhere else it was 1:1.<\/p>\n\n\n\n Over the following decade, the policy evolved alongside China\u2019s environmental and climate ambitions. The 2017 revision<\/a>, for the first time, introduced preferential treatment for replacements with electric arc furnace (EAF) steelmaking. These are less polluting and less carbon-intensive than the blast furnace-basic oxygen furnace (BF-BOF) route, which today still accounts for around 90%<\/a> of Chinese steel production.<\/p>\n\n\n\n Following China\u2019s 2020 pledge to peak its carbon emissions before 2030 and be carbon neutral before 2060, the 2021 revision<\/a> incorporated more explicit climate objectives. It further tightened replacement requirements in an expanded group of air-pollution control regions. It also included even stronger support for EAF steelmaking and emerging low-carbon technologies, such as hydrogen-based steelmaking.<\/p>\n\n\n\nA decade of steel policy evolution<\/h2>\n\n\n\n