China’s Ministry of Industry and Information Technology (MIIT) says local authorities must inspect steelmakers over the next month to ensure energy consumption standards are being met. Alongside that stick, the carrot of CNY 100 billion ($15.23 billion) of funds for companies closing capacity could also be increased, Kallanish notes.

Greater enforcement of environmental and energy consumption standards are increasingly being used as a tool to encourage small companies in industries with overcapacity to exit the market. MIIT says local governments must complete spot checks and hand in their reports by 10 July.

Companies which do not meet standards will have six months, and can ask for a three month extension, to improve their performance. After that, firms that still do not meet standards should be closed, MIIT says.

Companies which do close down capacity stand to gain from funds made available by both central and local government. Finance minister Lou Jiwei said on Monday that China could expand the CNY 100 billion in funds made available to industries reducing capacity as more funds are needed.

This figure will also be added to by local governments, which are being asked to contribute extra cash to the programme. Companies which exceed their capacity reduction targets will effectively be given cash rewards from the fund, although most of the money will go to programme to help resettle laid-off workers.