May 30, 2017

China Addresses Overcapacity In List Of Trade “Concessions”

Last Thursday, China’s Ministry of Commerce released a 117-page document that, according to Bloomberg, outlines a list of trade policy “concessions” that the country is willing to make in order to work more closely with the United States. The document addressed excess capacity in the steel and iron sector. The Ministry’s full comments are reprinted below while the full Ministry document is available here. The comments on excess capacity are as follows:

“The iron and steel industry is an important foundation for the U.S. industry, and steel workers remain a vital force in politics and society in the U.S. The U.S. is concerned about the closedown of steel companies and the unemployment of blue-collar workers, and hopes to improve the situation of the workers, and China expressed its understanding. In fact, the global economic downturn since the international financial crisis has led to the contraction in demand, which is the root for this wave of excess capacity in the global steel industry. Technological progress is an important factor for the decline in employment of the US steel industry. For example, in a steel plant in Pennsylvania, the U.S., by virtue of technical transformation, the number of workers had dropped from 2,000 to 26, but the production capacity was expanded. On one hand, the U.S. acknowledges that this wave of excess capacity in the global steel industry is a global issue which requires collective responses; on the other hand, it blames the Chinese government for its systematic support for the steel sector as an important reason for the current excess capacity. This is untenable.

“The steel industry of China is positioned to meet domestic demand. The Chinese government does not encourage the export of iron and steel products; on the contrary it has adopted a series of measures to control exports, including to impose more export tariffs on some types of iron and steel products, for example, the export tariff rate for ferrosilicon and the like has been increased to 20%, and that for non-alloy billets and bars and the like has been increased to 15%.

“The proportion of China’s steel exports to the US in its total steel imports is relatively small. Given the U.S. has taken a series of anti-dumping and countervailing measures towards China’s iron and steel products, China’s exports to the U.S. in regard of iron and steel products showed a downward trend year by year over the past 10 years. In 2016, the volume and amount of steel exports of China to the U.S. were only 1.18 million tons and US$1.7 billion, representing a year-on-year decrease of 51.5% and 40.1% respectively; therefore China’s steel exports have little impact on the U.S. steel industry.

“In implementing the strategy of adjusting structure and governance environment, China attaches great importance to resolving excess capacity in the steel industry; hence, enormous efforts have been made and remarkable results have been achieved. In this respect, the Chinese government has initiatively deployed practical strategies and will push ahead in this way. During five years from 2011 to 2015, China had cut over 90 million tons of backward steel production capacity. In 2016, China further reduced 65 million tons of capacity, and 202,000 jobs were involved. The 2017 Report on the Work of the Government proposed to further cut the capacity by 50 million tons. If this goal is achieved, China’s capacity utilization in steel production is expected to be further improved.

“Since 2014, China and the U.S. have had frequent communication and consultation regarding the issue of excess capacity by virtue of meeting of heads of state, the China-US Strategic and Economic Dialogue, the China-U.S. Joint Commission on Commerce and Trade, the G20 Forum and other occasions. China is willing to work with all parties to continue to enhance communication through the Global Steel & Iron Forum and other platforms, and jointly take action to resolve excess capacity problem in the global steel industry.”