China steel data masks scale of overcapacity
Inaccurate figures cripple Beijing's ability to make meaningful decisions for industry and challenge global miners in forecasting future demand
The mainland appears to have been routinely underestimating output from its sprawling steel sector, with official figures for last year alone 40 million tonnes below a key industry estimate - an amount equivalent to Germany's annual production.
Beijing has vowed to cut overcapacity in its steel sector, the world's biggest, but huge discrepancies in the data suggest that policies aimed at cutting emissions and modernising the economy are often not being implemented on the ground.
Cash-strapped local governments have an incentive to turn a blind eye to unauthorised but profitable steel production rather than risk job losses and mill closures by forcing them to comply with Beijing's new efficiency or emissions targets.
This means the extent of a glut in the steel sector is uncertain, making it harder for global miners such as Rio Tinto and BHP Billiton to forecast future sales of iron ore, the steelmaking ingredient.
"It is not satisfactory to have doubts about the accuracy of steel production statistics, particularly for a country as large as China with its importance to the global mining sector and steel supply," said Peter Fish, managing director at consultancy MEPS (International).
"How can the authorities make meaningful decisions about investment, rationalisation, emissions control, privatisation issues for an industry in which there is no consensus about the most basic statistic - the level of output?"