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China refutes steel overcapacity damage to the world

Author:Jiangyin roll machinery co. LTD Publications: 13/03/2018 Click:
Sino-U.S. Steel trade frictions continue. When Premier Li Keqiang met with U.S. Secretary of State Kerry and Treasury Secretary Jacob Lue yesterday, the fundamental reason for overcapacity was the weak recovery of the world economy, the sluggish growth of international trade and the decline in market demand. Production capacity must be handled in accordance with market rules. Prior to this, Jacob Lu questioned China's steel overcapacity, and bluntly stated that China's steel overcapacity "destroyed and distorted" the global market. Lou Jiwei, Minister of Finance of the People's Republic of China, combined with previous data and the current capacity reduction actions being carried out in China, gave a strong response to this statement.

Lou Jiwei: China is no longer a planned economy

At the opening ceremony of the eighth round of China-US Strategic and Economic Dialogue, Jacob Lu stated that China must formulate policies to significantly reduce the output of a series of industries affected by overcapacity, especially the steel and aluminum industries. Operation and stability are essential. The implication is that the US once again blamed China on the current plight of the global steel market.

From the data point of view, China is indeed a big country in global steel production. According to the World Steel Association, China currently supplies 50% of the world's steel, and its output is much larger than any single country. In the first quarter of this year, China's steel production was 10 times that of the United States. It is indeed an indisputable fact that China's steel has overcapacity.

However, Lou Jiwei gave clear rebuttals to the argument that China's excess steel production capacity undermines the global steel market. He responded that China's overcapacity was mainly accumulated after the global financial crisis in 2008, but in 2009-2011, China's economic growth contributed more than 50% of the global economic growth. "Especially eye-catching performance in infrastructure investment, which naturally led to the growth of coal, steel, cement and other production capacity." Lou Jiwei said.

Under the premise that China has already entered the market economy, Lou Jiwei said bluntly, "China is no longer an era of planned economy, and the government cannot issue hard targets to enterprises. Especially today, more than 50% of enterprises in the steel industry are private enterprises."

Analysts said that in fact, China has provided a large number of high-quality and low-cost steel products to the world, supporting infrastructure construction in many countries and regions. The argument that Chinese steel disrupts the international market is inappropriate. In addition, China has been adhering to the principle of not encouraging large-scale export of steel products, but it has also been controlled and restricted.

The domestic market is the main force of steel consumption

Compared with China's annual total steel production, exports account for only a small part. The data shows that the national steel output in 2015 was 1.124 billion tons, while last year's steel export was 112 million tons, accounting for only 10% of the total output.

Analysts said that most of the steel produced in China every year is used for domestic consumption. According to the data in recent years, domestic consumption of steel is 650 million to 670 million tons per year, of which, steel consumption in the real estate sector can account for 30%, and steel consumption in the infrastructure sector is also around 20%.

A previous report issued by the China Steel Association also showed that China's apparent consumption of crude steel last year was 704 million tons, accounting for 43.2% of the global total. There is no doubt that China is still the world's largest steel consumer market.

Judging from the data, the United States' frequent stance on China's steel products is not reliable enough. China exported 112 million tons of steel last year, of which exports to seven countries in Southeast Asia, nine countries in the Middle East, South Korea and India have exceeded 50% of the total. In other words, the main flow of Chinese steel exports is in Asia.

On the other hand, although the United States is a major steel importing country, the main source of US steel imports is other Asian regions except China and Japan.

There is very little intersection between China and the United States in the field of iron and steel, but the United States is the country that has initiated the most "double anti" investigations against China. Bai Ming, deputy director of the International Market Research Department of the Research Institute of the Ministry of Commerce, has previously stated that on the one hand, the United States is gradually paying attention to the steel market in the low-end sector, which inevitably creates conflicts with related products in China. But in essence, the United States still wants to implement trade protection in the name of "dual opposition" for its own enterprises.

Policy markets join forces to resolve excess capacity

Despite frequent "encirclement and suppression" from other countries and regions in the world of steel, China still takes the attitude of being a responsible steel power. Not only does it discourage large-scale steel exports, but it also resolves excess steel production capacity from a supply-side perspective.

Bai Ming said that from an objective point of view, China's export to the world steel market must be restrained, because if the pressure on the international steel market is too great, then China, which occupies half of the country, will certainly be implicated.

In terms of supply-side reforms, on February 4, this year, the State Council officially issued the "Opinions on Resolving Excess Capacity in the Iron and Steel Industry to Achieve Development Out of Difficulties", which proposed a "five-year reduction in crude steel production for the Chinese steel industry during the 13th Five-Year Plan" The specific requirements of "capacity 100 million-150 million tons".

In the eyes of analysts, the resolution of future steel production capacity will mainly focus on policy guidance and market allocation. Analysts believe that we must first ensure that all companies survive and compete under the same standard. "For example, some steel companies have a strong sense of environmental protection, but due to the relatively high supporting expenses, it is very difficult for enterprises to operate. Instead, those companies with weak sense of responsibility are profitable because they save expenses. This requires policies to guide and Standardize and demarcate the threshold of enterprise production through standards. "The analyst said.

In addition, the role of the market in optimizing resource allocation cannot be underestimated. Analysts said that the mechanism of survival of the fittest in the market is a powerful tool for forcing companies to innovate and reform. Some steel companies will not adapt and keep up with the pace of the market, this natural elimination is also an important way to reduce excess capacity.

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