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China to close more mines as supply-side reforms progress to next stage

China is expected to close more mines as its supply-side reform moves to its next phase and it targets eliminating more zombie companies, said Zhu Baoliang, chief economist and director of economic forecasting at China's State Information Center.

Zhu, whose policymaking think tank is run by the National Development and Reform Commission, told delegates at the Credit Suisse Asian Investment Conference in Hong Kong on March 20 that supply-side structural reform has significantly reduced inefficient capacity across different sectors, but the problem of zombie companies— which refers to long-term loss-making companies that may have already ceased production — has yet to be solved.

"For the past two years, [the reform] focused on capacity cuts. The next two to three years, we will target zombie companies," Zhu said, referring to the fact that capacity cuts may only lead to staff reductions at zombie companies instead of closures.

Zhu expects more mines to be closed in the following years, especially in remote areas, as the government aims to further improve the country's capacity utilization rate.

The campaign is in line with China's new economic reform initiatives in which it prioritizes quality of growth over rate of growth, Zhu said. "The recent institutional reforms also serve the same goal."

The regrouping and centralizing of central government departments, which creates a ministry of natural resources and a ministry of ecological environment, will accelerate the establishment of a new assessment system for government departments and officers, Zhu said, who believes that evaluations would be based on factors in addition to GDP.

Zhu also said trade conflicts between the U.S. and China are a potential risk to China's economic growth.

"We are confident to maintain an economic growth of around 6.3% for the next three years," Zhu said, adding that the government is ready for a slowdown in economic growth and may to reduce infrastructure investments as part of its deleveraging efforts.

"Trade conflict with the U.S. is a potential risk, and we are still evaluating how big the impacts could be," Zhu said, adding that the growth outlook for domestic consumption and exports remains positive.

While the U.S. may impose tariffs on up to US$60 billion of Chinese imports, Zhu believes that China would be able to manage the risk even if actual tariffs reached the upper limit of the estimate.