In late August 2025, five leading Chinese ministries issued the new Work Plan for Stabilizing Growth in the Steel Industry (2025-2026). The work plan provides important signals for the next steps in one of China’s core industries that deals with overcapacity and high climate emissions.
Three messages stand out
- Green and low-cost upgrading is central. Old plants will be phased out, while production facilities will be modernized with electric arc furnaces (EAF), hydrogen metallurgy, and new green metals standards. Preferential financing, including “ultra-long-term special government bonds and loans,” will support these upgrades. Carbon accounting mechanisms will be expanded to integrate the sector into national and international carbon markets.
- Overcapacity will be curbed through supply– and demand-side measures. Supply controls include a ban on new production capacity and limits on inefficient plant operations. Demand-side measures aim to expand applications for steel and promote high-end, specialized steel products.
- Existing emission-intensive production will remain supported in certain areas. Long-term agreements with coking coal enterprises and imports will be promoted, while existing coke ovens are slated for upgrades.
Background
China’s steel industry is the world’s largest, producing roughly 1 billion tonnes of crude steel in 2024—54% of global output (GMK Centre). Overcapacity, exacerbated by China’s prolonged real estate downturn, has depressed profitability across the sector. Steel and metals production (especially iron and steel) is highly emissions-intensive, accounting for 15–17% of China’s total carbon emissions, second only to power generation. Against the background of Beijing’s targets to peak emissions by 2030 and achieve carbon neutrality by 2060, green steel production needs to accelerate: electric arc furnace steel accounted for only 10% of total output in 2024, short of the 15% target for 2025 (Centre for Research on Energy and Clean Air).
Decarbonizing the sector will require significant investment. Between 2026 and 2030, an estimated USD 18 billion is needed to scale EAF and direct reduced iron (DRI) shaft furnaces, as well as hydrogen electrolysers (Climate Bonds Initiative).
China’s steel decarbonizations policy drive
Following China’s 2030 emission peak and 2060 carbon neutrality announcement in 2020, policy instruments affecting the metals sector have steadily evolved:
- Carbon price: In 2025, the Ministry of Ecology and Environment (MEE) expanded the national carbon market to include steel, cement, and aluminum (International Carbon Action Partnership). It also announced a shift from intensity-based to absolute emissions caps by 2030, strengthening incentives for low-carbon production (S&P Global).
- Green and transition finance: The National Financial Regulatory Administration (NFRA) and the Ministry of Industry and Information Technology (MIIT) have promoted green finance. Hebei Province—home to 11% of global steel output—launched the first Guidelines for Transition Finance in 2023 (Climate Bonds Initiative; People’s Bank of China) by end-2024, local steel firms secured USD 2.8 billion in transition loans (Climate Bonds Initiative).
- Green steel production through EAF: MIIT set a 2025 goal for EAF steel to exceed 15% of total crude steel output, with a long-term target of 30% by 2035 (China Iron and Steel Association has proposed a long-term plan for EAF steel to account for over 30% of total crude steel production by 2035) (SMM).
- Scrap Steel Utilization: The National Development and Reform Commission (NDRC) aims to increase scrap steel use to 300 million tonnes by 2025, supporting expanded imports and high-efficiency recycling (NCRC; Transition Asia).
- Renewable energy and energy conservation targets: For the first time, NDRC introduced renewable portfolio standards (RPS) for the steel industry in 2025 (Reuters), alongside concrete energy efficiency targets (i.e., minus 2%) for EAF operations issued by NDRC, MIIT, MEE and Ministry of Commerce (MOFCOM).
- Hydrogen targets: Policies led by the NDRC and National Energy Administration (NEA) promote hydrogen-based shaft furnaces and direct reduction processes. The NEA’s 2024 Implementation Plan for Low-Carbon Hydrogen in Industry lays out steps for replacing coke-based smelting with hydrogen-based shaft furnaces and fluidized bed direct reduction ironmaking (National Energy Administration).
Implications for international partners
China remains heavily reliant on imported raw materials: iron ore imports totaled USD 106 billion (4% of total imports) in 2024, with Australia providing 66% and Brazil 18%. Coal imports, valued at USD 38 billion, are sourced primarily from Russia (34%), Mongolia (21%), Indonesia (17%), and Australia (15%)(Harvard).
As the shift of China’s steel sector will not be sudden, the signals to green the industry and provide less quantity but higher-quality and more specialized products are clear. This requires steel-related exporters to China to prioritize innovation and secure long-term financing to supply premium, low-emission products, including advances in hydrogen metallurgy. Australian exporters such as Fortescue, Rio Tinto and BHP are working with major Chinese partners like China Baowu and Shougang on low-carbon steel production, while the Australian and Chinese governments announced new low-carbon steel policy dialogues in July 2025 (The Conversation). Similarly, Brazilian Vale signed MOUs to develop green steel with Baowu (Vale) and HBIS as recently as in 2025 (Reuters).
For coal and coke exporters whose products have long been core components in iron making for energy generation and iron ore reduction, however, the future is less certain, requiring pathways to align with China’s and international decarbonization agenda.
Article Summary: China has released a new Steel Industry Work Plan for 2025–26, signaling a strong push toward green upgrades, tighter capacity controls, and continued—but more efficient—support for existing production. The plan emphasises modernisation through electric arc furnaces, hydrogen metallurgy, and stricter carbon accounting, backed by preferential financing. While overcapacity remains a challenge, measures also aim to expand demand for high-quality, specialised steel products. For international partners, the plan highlights both opportunities in low-carbon steel innovation and uncertainties for coal and coke exporters.
Professor Christoph Nedopil is the Director, Griffith Asia Institute.
