Implementation Measures for Capacity Replacement in the Steel Industry
(Draft for Public Comments – October 2025)

Issuing Authority: Ministry of Industry and Information Technology, Department of Raw Materials Industry
Status: Draft for Public Comments
Comment Deadline: November 23, 2025

1. General Provisions

Article 1: Purpose and Legal Basis

To earnestly implement the spirit of the 20th Party Congress and its second, third, and fourth plenary sessions, implement the deployment of the National New Industrialization Promotion Conference, innovate capacity governance approaches, accelerate the reduction and quality improvement of existing capacity, structural optimization and transformation and upgrading, promote the balance of market supply and demand, and drive high-quality development of the industry, these Measures are formulated in accordance with:

1. Opinions of the CPC Central Committee and State Council on Doing a Good Job in Carbon Peak and Carbon Neutrality under the Complete, Accurate and Comprehensive Implementation of the New Development Concept
2. Notice of the State Council on Issuing the Action Plan for Carbon Peaking Before 2030 (State Council [2021] No. 23)
3. Opinions of the State Council on Resolving Excess Capacity and Achieving Development Through Overcoming Difficulties in the Steel Industry (State Council [2016] No. 6)

Article 2: Scope of Application

These Measures apply to projects involving new construction, reconstruction, expansion, and on-site rebuilding and major overhauls of iron-making and steel-making smelting equipment by enterprises of all ownership types within the territory of the People’s Republic of China.

Article 3: Terminology and Definitions

Unless otherwise specified, the terms used in these Measures are defined as follows:

1. Equal replacement: Construction capacity equals retired capacity
2. Reduced replacement: Construction capacity is less than retired capacity
3. Replacement ratio: The ratio of retired capacity to construction capacity

Article 4: Key Regions

Key regions referred to in these Measures are defined according to the Notice of the State Council on Issuing the Action Plan for Continuous Improvement of Air Quality (State Council [2023] No. 24) (see Attachment 1). Where other State Council documents provide otherwise, those provisions shall apply.

2. Capacity Eligibility and Sources

Article 5: Eligible Capacity

Smelting equipment used for capacity replacement must be either:

1. Listed in the steel industry smelting equipment inventory reported by SASAC and provincial governments to the State Council in 2016 (the “State Council List”), or
2. Legally compliant smelting equipment built since 2016.

Six types of capacity ineligible for replacement:

• Capacity in official reduction tasks or retired with subsidy support
• Equipment not actually built/operational before provincial announcement
• Backward equipment listed in Industrial Structure Adjustment Catalog
• Equipment operating <90 days/year for two consecutive years
• Non-steel industry capacity (casting, forging, ferroalloys)
• Auxiliary equipment (e.g., vanadium converters, AOD, induction furnaces)

Article 6: Capacity Sources and Timeline

• Before 2027: Inter-enterprise capacity replacement allowed nationwide.
• From 2027 onward: Inter-enterprise replacement prohibited. Only mergers & acquisitions or intra-group transfers permitted.
• Capacity and equipment must correspond one-to-one; no separation allowed.

Article 7–8: Mergers & Capacity Verification

Substantive M&A requires legal, equity, and operational integration. Capacity verification depends on whether equipment is from the State Council List (2016) or built post-2016 (using Capacity Calculation Tables).

3. Regional Requirements and Replacement Ratios

Article 9: Regional Requirements

• Yangtze River Economic Belt: No new steel projects outside compliant industrial parks.
• Key Regions (e.g., Beijing-Tianjin-Hebei, Yangtze Delta, Fen-Wei Plain): No net capacity increase; no inbound transfers.
• Provinces with national capacity caps may not accept external transfers.

Article 10: Replacement Ratios

• Standard ratio: ≥1.5:1 (retired:construction)
• M&A after June 2021: ≥1.25:1
• Equal replacement (1:1) allowed for:
  • On-site major overhauls (no change in equipment type/capacity)
  • Special EAF processes for high-end special steel
  • Projects in Qinghai and Tibet

4. Low-Carbon Development Incentives (Article 11)

Encourages scrap use, EAF development, hydrogen metallurgy, and green retrofits. Special equal-replacement provisions for:

• Retiring converters + blast furnaces to build EAFs
• EAF-to-EAF replacements
• Hydrogen ironmaking with ≥60% carbon reduction vs. BF

5. Procedures and Administration (Articles 12–19)

Includes requirements for:

• Capacity replacement plans (detailed templates required)
• Cross-regional transfers (central vs. local enterprise rules)
• 15-day public notice periods
• Strict project change protocols
• Mandatory equipment dismantling before new production
• Provincial acceptance inspections
• 24-month validity for approved plans (revoked if construction not started)

6. Policy Transition (Articles 20–22)

Grandfathering provisions for plans announced before August 23, 2024. Coordination with energy, emissions, and carbon policies required. The 2021 Measures are abolished upon enactment.

Attachments Overview

• Attachment 1: Key Regions (Beijing-Tianjin-Hebei, Yangtze Delta, Fen-Wei Plain)
• Attachment 2: Capacity Calculation Tables (BF, Converter, EAF)
• Attachment 3: Capacity Transfer Announcement Template
• Attachment 4: Capacity Replacement Plan Announcement Template

Policy Analysis and Key Takeaways

Major Changes from 2021 Policy

1. Stricter replacement ratios (now uniformly ≥1.5:1)
2. Inter-enterprise capacity trading ends in 2027
3. Tighter regional transfer restrictions
4. New equal-replacement incentives for low-carbon tech
5. 24-month project deadlines with automatic revocation
6. Stronger enforcement and annual reporting

Strategic Implications

This policy aims to:

• Achieve absolute reduction in national steel capacity
• Accelerate industry consolidation via M&A
• Promote EAF and hydrogen-based steelmaking
• Improve air quality in urban agglomerations
• Align steel output with long-term demand forecasts