China balks at global cooperation toward steel cuts

China has declined to be a signatory party to an international statement on addressing steel mill overcapacity, according to an April 18, 2016, press release from the United States Department of Commerce.

According to a Bloomberg online article, representatives of the European Union, the United States, Japan, Canada, Mexico, South Korea, Switzerland and Turkey issued a joint statement on steel market overcapacity after the April 18 meeting in Brussels. However, China, the world’s largest steel producer and the nation most commonly cited as hosting overcapacity, did not sign the statement, according to the Department of Commerce news release.

United States Department of Commerce Secretary Penny Pritzker has issued a postmeeting statement that reads in part, “With the largest amount of excess capacity in the world, larger than the rest of the world combined, China had a unique opportunity—and responsibility—to engage constructively toward [an agreed upon] result, one that is in the world’s interest as well as China’s.”

Pritzker adds, “The steel market is in a state of crisis resulting, primarily, from massive global excess capacity, much of which has stemmed from trade distortive government policies and actions. In an effort to address this situation, this week ministers, vice ministers and senior level officials from all over the world—including the United States—traveled to Brussels for the OECD High-Level Meeting on Excess Capacity and Structural Adjustment in the Steel Sector. Most of these countries—many of them major steel producers—share the view that excess capacity, and government measures that give rise to it, underlie the current crisis. These countries came to Brussels prepared to deal seriously with these issues. Unfortunately, other countries—China, among them—were not prepared to do so, preventing broad consensus.”

Pritzker says the need for China to act has not gone away, and that the Commerce Department will continue to reach out to the Chinese government. “Unless China starts to take timely and concrete actions to reduce its excess production and capacity in industries including steel, and works with others to ensure that future government actions do not once again contribute to excess capacity, the fundamental structural problems in the industry will remain and affected governments—including the United States—will have no alternatives other than trade action to avoid harm to their domestic industries and workers. As we heard at a hearing last week on overcapacity convened by the Administration, the viability of the global steel industry has come under intense pressure from excess production and capacity in China, and there are already significant human costs associated with the current steel market downturn. This is a global issue and meaningful solutions will require global action, including from steel producing countries, especially China. We will be working directly with China on excess capacity issues in a number of different bilateral and multilateral setting in the weeks and months ahead.”

According to the Bloomberg article, among the wording in the joint statement is that “the restructuring that needs to take place in the steel industry should be market driven, with production and trade flows reflecting the market-based competitive positions of steel producers.”

China’s state-owned enterprise (SOE) steelmakers were likely the target of another portion of the statement, which according to Bloomberg states, “Governments and government-supported institutions [should] not provide subsidies or other support that sustain uneconomic or consistently loss-making steel plants, [or] encourage investment in additional steelmaking capacity that would otherwise not be built, or otherwise distort competition.”