Once upon a time, the 'Zhejiang phenomenon' became synonymous with overcapacity. From 2003 to 2005, Zhejiang Province took the lead in developing new dry-process cement rapidly, with many investors entering the Zhejiang cement industry and a very high annual capacity growth rate. By 2006, severe overcapacity had emerged in Zhejiang's cement industry. This was followed by continuous vicious low-price competition. According to Li Xinlong, President of the Zhejiang Cement Association, when Zhejiang's cement output reached about 100 million tons, in the worst year the entire industry's profit was only 100 million yuan, with most enterprises operating at a loss and facing difficult operations.

　　Facing the severe situation of overcapacity, with the joint efforts of local governments, associations, and enterprises, through extensive work in recent years, the overcapacity conflict has been somewhat eased and certain results have been achieved. According to the latest statistics, in the first 10 months of 2013, Zhejiang's cement output reached 99 million tons (up 6.6% year-on-year), and profits reached 2.22 billion yuan (up 23.5% year-on-year), showing improvement over last year.

　　To curb illegal new cement capacity and promote the implementation of the State Council Document No. 41 [2013], the China Building Materials Federation, China Cement Association, and China Cement Network jointly launched the 'Curbing New Cement Capacity, Accelerating R&D of Second-Generation New Dry-Process Cement Technology and Equipment' campaign. The campaign has traveled to Northeast, Central Plains, Xinjiang, and Northwest stations. Recently, the East China and Central China stations were held in Hangzhou, Zhejiang. The 'Zhejiang phenomenon' of past years has drawn widespread industry attention, and choosing this location for the event is of extraordinary significance. Currently, overcapacity is not just a problem for Zhejiang's cement industry but a common issue facing East China and most of the country.

　　Today, although the overcapacity conflict in Zhejiang and other provinces has not been fundamentally resolved and crises persist, a series of effective measures have indeed alleviated the overcapacity problem in the cement industry, resonating with cement industries in various regions and warranting reflection and reference.

　　Measure 1: Strictly Control New Capacity

　　Strictly controlling new capacity can be said to be a trump card for the state to address overcapacity. In State Council Document No. 38 [2009], cement construction projects were strictly controlled, requiring 'strict control of new cement capacity and implementation of the principle of equal replacement of outdated capacity. Construction projects not yet started as of September 30, 2009, shall be suspended and thoroughly cleaned up. Projects inconsistent with the above provisions are strictly prohibited from starting construction...'

　　However, although Document No. 38 strictly restricted new cement construction projects, new capacity was not suppressed. In fact, the ban instead triggered an expansion boom. To catch the 'last train,' cases of rush-building production lines were everywhere. According to China Cement Association data, from the issuance of the document to the end of 2012, 623 new production lines were built nationwide, adding 707 million tons of clinker capacity, 205 more lines than the 418 under construction approved when Document No. 38 was issued, and nearly 300 million tons more clinker capacity.

　　By June 2013, there were 220 cement production lines under construction and planned, with clinker capacity of 280 million tons, equivalent to 450 million tons of cement capacity. If all these lines are completed and put into operation, plus previous lines, total capacity will reach 3.5 billion tons, while the 12th Five-Year Plan's total cement demand capacity is 2.2 billion tons. By then, there will be 1.3 billion tons of excess, with a capacity utilization rate of only 63%.

　　The cement industry has entered comprehensive overcapacity, which has become a general consensus. Recently, the State Council issued the 'Guiding Opinions of the State Council on Resolving Serious Overcapacity Conflicts' (State Council Document No. 41 [2013]), which again put forward requirements for controlling new capacity in the cement industry and detailed specific targets and responsibilities to governments at all levels.

　　However, after the issuance of Document No. 38, with new capacity more or less existing in various regions, Zhejiang Province, as the first province nationwide to fall deep into the overcapacity mire, performed particularly well in strictly controlling new capacity.

　　According to Zhejiang Cement Association data, since the National Development and Reform Commission issued Document No. 38 in 2009, the Zhejiang Provincial Government, in accordance with the document's spirit, has not approved any new production lines to date.

　　Like Zhejiang, Hubei Province strictly implements industrial policies. Since Document No. 38, there have been no unapproved new dry-process cement clinker production lines, and the province's cement clinker output growth is slightly lower than market capacity growth.

　　Traveling through the Northeast, Central Plains, Xinjiang, and Northwest stations of the campaign, the author deeply felt the calls from various regions to curb illegal new cement capacity. After a previous round of blind investment and facing current severe overcapacity pressure, strictly controlling new capacity has become an industry consensus, but few regions truly implement it strictly.

　　It can be said that the experience of full market competition has made the industry and enterprises deeply aware of the harm of overcapacity, and also made it easier for enterprises in the local market to reach consensus on suppressing new capacity and strictly controlling overcapacity. Especially in Zhejiang and other regions, after experiencing a previous round of brutal market competition, the wounds of overcapacity have left a deep mark on the local industry and enterprises. Both enterprises and the market find it difficult to accept the pressure of new capacity, and both government and enterprises have a clear understanding of the consequences of increased new capacity, allowing better implementation of new capacity control.

　　Measure 2: Promote Mergers and Reorganizations

　　In recent years, after basically completing the upgrading of new dry-process cement technology, provinces in East and Central China have seen the strong become stronger, with large enterprises accelerating mergers and reorganizations, further adjusting capacity layout, and increasing capacity concentration.

　　In the Southeast Economic Region centered on Zhejiang, before 2007, the upgrading of cement production technology was basically completed, with the proportion of new dry-process cement reaching 100%. However, although there were many cement enterprises, there was no influential leading enterprise. Extremely fierce market competition led to extremely low cement prices, and the entire industry was basically operating at a loss. Since the establishment of Southern Cement in 2007, after several years of rapid development, regional mergers and reorganizations have advanced, capacity concentration has continuously improved, and market competition has become more rational.

　　Taking Zhejiang as an example, in 2006, the entire industry had 100 million tons of cement capacity but only 100 million yuan in industry profit. The average industry profit of 1 yuan per ton of cement plunged Zhejiang's cement industry into its lowest point. However, starting in 2007, the Zhejiang Provincial Government vigorously promoted large-scale mergers and reorganizations led by Southern Cement, putting the East China cement market centered on Zhejiang on a path of self-rescue. By the end of 2010, the top 4 enterprises in Zhejiang had 80% clinker capacity concentration and 50% cement capacity concentration.

　　In 2012, Zhejiang's cement industry produced 115 million tons annually and achieved total profits of 3.46 billion yuan. In the first 10 months of 2013, the province's industry profit reached 2.22 billion yuan, an increase of 23.7%, and is expected to exceed the previous year's level for the full year.

　　Obviously, improving capacity concentration through industry mergers and reorganizations, and thereby enhancing the profitability of the entire industry, is one of the more effective means. Many provinces and cities in East and Central China have successively promoted concentration improvement. In Central China, in April 2011, the Hubei Provincial People's Government issued the 'Opinions on Supporting the Sound and Rapid Development of the Province's Cement Industry,' explicitly proposing support for leading enterprises such as Huaxin and Gezhouba Cement to implement cross-regional, cross-industry, and cross-ownership mergers and reorganizations. Currently, Huaxin, Gezhouba, and Yadong wholly own or control 39 new dry-process cement clinker production lines in the province, with total cement clinker capacity of 42.5475 million tons, accounting for about 70% of the province's new dry-process cement clinker capacity.

　　In Hunan, 65 new dry-process cement production lines have been put into operation, with 3 more awaiting operation. According to current conditions, Hunan's 68 dry-process lines have clinker capacity of 89 million tons, and new dry-process cement capacity is close to 120 million tons. Among them, foreign-invested enterprises (Southern Cement, Sinoma Cement, Conch Cement, Huaxin Cement, Jidong Cement, Hongshi Cement) have new dry-process cement capacity of 68 million tons, with Southern alone accounting for 32 million tons, indicating very high industrial concentration of new dry-process cement.

　　In January 2013, the Ministry of Industry and Information Technology, Ministry of Finance, National Development and Reform Commission, and other departments jointly issued the 'Guiding Opinions on Accelerating Mergers and Reorganizations of Enterprises in Key Industries.' Regarding the cement industry, the Opinions specify that by 2015, the top 10 cement enterprises should reach an industrial concentration of 35%, forming 3-4 building materials enterprise groups with clinker capacity of over 100 million tons, complete industrial chains including mines, aggregates, commercial concrete, and cement-based material products, and strong core competitiveness and international influence.

　　As an industry with economies of scale, the cement industry can adjust and optimize its industrial structure and promote sustained and healthy development by advancing enterprise mergers and reorganizations, extending and improving industrial chains, increasing industrial concentration, promoting large-scale and intensive operations, and forming a group of large enterprises and groups that play a leading role in the industry.