To win market economy status, China must cut steel overcapacity

Beijing has made promise after promise to reform the sector, yet output shows no sign of abating

PUBLISHED : Monday, 25 July, 2016, 1:02am
UPDATED : Monday, 25 July, 2016, 1:02am

China’s export steel production continues unabated amid overcapacity, prompting complaints – denied by China – about the dumping of steel products and raising the risk of trade disputes with the West. Beijing and visiting European Union officials agreed last week to set up a joint team to monitor steel-trade data and China’s efforts to cut output. At the same time, numbers for June showed China produced an unprecedented 100-million-plus tonnes of steel products and lifted exports by 23 per cent. The figures are bound to stiffen protests over dumping of steel products and powerful opposition from European industry groups to granting China market economy status.

It is not as if the central government has failed to identify the risk of overcapacity. In various meetings and documents, Beijing has repeatedly stressed the need to correct it. But local governments and state-owned enterprises have too many vested interests at stake. The political resistance is huge.

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At best, local governments are dragging their feet; at worst, they are continuing with projects behind Beijing’s back in pursuit of job-creation and growth.This is symptomatic of lack of progress in economic reform and transitioning from an investment to a consumption-led growth model. It is only seven months since the nation’s leaders approved an economic blueprint that suggested that reform to tackle overcapacity in the state sector would be this year’s top priority.

It is time for Beijing to back up talk with action. If it does not rein in overcapacity, this will become a concern not just for China but for the global economy. Already, the US, the EU, Australia, Vietnam, Brazil, Malaysia and India have launched either anti-dumping or anti-subsidy investigations into Chinese exports.

The granting of market economy status to China in the World Trade Organisation is anticipated this year. Because it would give China’s competitors less opportunity to initiate anti-dumping measures on Chinese exports, opposition to it is growing in the current climate of overcapacity.