China’s steel problem: how its coronavirus recovery risks making foes of trading partners

Managing the political anger over China’s rapid economic recovery will be one of the biggest diplomatic challenges for Beijing

Nowhere is this better illustrated than in the militantly protectionist steel sector, where rancour has raged globally for decades

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Workers load steel products for export onto a cargo ship at a port in Lianyungang, Jiangsu province, on May 27. The combination of China’s rapid economic recovery from the pandemic and its massive steel capacity could make relations with its trading partners even more fraught without some deft diplomacy. Photo: Reuters

Published: 1:15am, 10 Oct 2020Updated: 2:27am, 10 Oct 2020

As the Covid-19 pandemic damages so many economies around the world, killing jobs and shoving millions of families back into poverty, an uncomfortable and politically challenging possibility is beginning to emerge: certain economies will suffer more sharply than others, and China seems set to recover more quickly and suffer less pain.

Managing the political anger this will generate will be one of the biggest diplomatic challenges China will face in 2021. Given Beijing’s blunt-instrument reputation in global diplomacy, this does not augur well.

Nowhere is this better illustrated than in the steel sector. Rapid recovery in production is already under way inside China – contrasted with deep contractions elsewhere in the world – and is set to escalate the rancour that has raged across the global steel market for decades.

Controversy over China’s surplus capacity and the global impact of exporting its surpluses has fuelled concern in the sector since the mid-1990s. This has made steel one of the most militantly protectionist of all sectors and the subject of more widespread tariff warfare than almost any other sector.

China’s steel conundrum – similar to the challenges it faces in coal, cars and a wide range of other industrial products – is by default a world problem, given its size. It leaves its leaders with an awkward dilemma.

Even a small mismatch between domestic supply and demand can result in huge ripple effects on global markets – impacts too large for anyone except China to manage. China’s commitment to industrialisation and lifting material living standards for its huge population demands massive production of steel, with a perfectly reasonable desire to make as much of the steel as possible inside China.

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