A group of North American steel associations have sponsored a recently released an economic study that claims the Chinese steel industry has benefited from significant subsidies. The study states that Chinese steel production, which jumped from 126 million tons in 2000 to 349 million tons last year was due to China government policies.
The report, called The China Syndrome: How Subsidies and Government Intervention Created the World’s Largest Steel Industry, looks at how the Chinese steel industry has grown so significantly over the past six years.
As a consequence, the Chinese steel industry, which produced more steel than the next four largest producing countries combined, has grown far beyond the size it would have reached under market conditions. This government-funded and driven expansion is already having an enormous impact on the world steel market.
Members who sponsored the study are the American Iron and Steel Institute , the Steel Manufacturers Association, the Specialty Steel Industry of North America, and the Committee on Pipe and Tube Imports. The groups are calling for an end to the Chinese government’s policy of subsidizing its domestic steel industry.
"The subsidies provided by the Chinese government give the Chinese steel industry a substantial artificial advantage over its international competitors," said Alan Price, a partner with Wiley Rein & Fielding, LLP, one of the study's authors. "The Chinese government provides direct benefits to its steel industry through a number of different means, such as transfers of ownership interests on terms inconsistent with commercial considerations; conversion of debt to equity in steel companies; debt forgiveness and inaction regarding non-performing loans; preferential loans and directed credit; tax incentives; cash grants; land grants; targeted infrastructure development; manipulation of raw material prices; and manipulation of the value of the Chinese RMB. Currency manipulation in particular is especially troublesome, as it has the effect of making exports of Chinese steel and products containing steel artificially cheap, while effectively imposing a tax on imports from the United States," said Price.
According to the study, the Chinese government also provides the industry with indirect support, such as import barriers and barriers to foreign investment. China has also failed to enforce its environmental and labor laws fully. Taken together, these policies provide the Chinese steel industry with yet another artificial advantage in international competition.
These subsidies allowed China's steel production to increase by over 170 percent between 2000 and 2005, and exports to increase by 140 percent over the same period. In the same period, steel imports from China into the U.S. doubled. This unprecedented increase in Chinese steel capacity would not have been possible, the study states, without the support of the Chinese government. The study notes that many of these subsidies appear to violate China's commitments to the World Trade Organization.
The report noted the following ways in which the Chinese government provides both direct and indirect benefits to their steel industry: cash grants, land grants, transfers of ownership interests on terms inconsistent with commercial considerations, conversion of debt to equity in steel companies, debt forgiveness and inaction regarding non-performing loans, preferential loans and directed credit, tax incentives, including a variety of income tax exemptions and reductions, targeted infrastructure development, manipulation of raw material prices, and manipulation of the value of the Chinese RMB.
Along with the above, the report notes that the Chinese government has taken other steps to provide the steel industry with support, including import barriers and barriers to foreign investment. Additionally, the authors of the report note that China has failed to enforce its environmental and labor laws fully.
The result is that the Chinese steel industry has an artificial advantage in international competition.
In conclusion, the economic report, prepared by Wiley Rein & Fielding LLP, notes that under true market conditions, China would still have a sizable steel industry. However, the industry would not grow to be 31 percent of global steel production. To view the report click on the following link -