Xi's push to curb pollution leads to China's takeover of heavy industry

President Xi Jinping’s big push to curb pollution and excess capacity in steel and other industries is also consolidating his government’s control over them.

Just last year, the state’s share of steel capacity increased to 67 per cent from 60 per cent while aluminum smelting saw about an equal increase, J Capital Research Ltd. estimates. In coal, which began consolidating years earlier, the government now controls 80 per cent of capacity compared with about 45 per cent in 2010, according to the Hong Kong-based firm.

Xi’s campaign has boosted corporate profits, ended years of deflation, and stabilized debt growth to help underpin the first full-year economic acceleration last year since 2010. But his aim for a "bigger, better and stronger" state role also means those bloated companies risk stifling private ones, as the Communist Party strengthens its grip on the economy.

Call it “de facto nationalization,” says Jude Blanchette, China practice lead at Crumpton Group in Arlington, Virginia, and a former Conference Board researcher in Beijing. “We’re clearly seeing the re-strengthening of state-owned enterprises, oftentimes at the zero-sum expense of private players. Private folks are exiting the market either because they’re pushed out or they can’t survive.”