- Steel Boom in China under Threat by High Subsidies

Steel Boom in China under Threat by High Subsidies

Tuesday, 05 February 2008

Although China isexperiencing booming growth in its steel industry due to massive subsidiesprovided by the government, these are against the WTO norms and may land thecountry in trouble.

As per the findings of a study revealed by the Alliance forAmerican Manufacturing on January 8, 2007, China has emerged as the largestproducer and exporter of steel in the world on the strength of major governmentenergy subsidies, reported Reuters .

The study estimates the energy subsidies to Chinese steelindustry in 2007 at $15.7 Billion, a whooping 3,800% rise from 2000. Throughcomparisons between Chinese and world prices for thermal coal, coking coal,natural gas and electricity, the report found energy subsidies for the Chinesesteel sector to be $27.11 Billion from 2000 through mid-2007.

The International Iron and Steel Institute revealed thatChina produced 37% of global steel production through the initial 11 months of2007, increasing from 34% for the entire 2006. In the first 11 months of 2007,China’s steel production was measured at 446 Million Metric Tons against 90Million Metric Tons by the US.

It is the Chinese government which is behind the concreteposition of the steel industry. Its development has been aided tremendously byhuge direct and indirect subsidies even though many of them are in violation ofthe World Trade Organization (WTO)’s subsidies and/or the obligations of thecountry to its WTO accession agreement.

The energy subsidies are characteristic of China’s blatantsubsidization and illegal activities like currency manipulation. Chinesesteelmakers benefited from over $50 billion in subsidies during the summer of2007. Most of the subsidies is with the Chinese provincial and localgovernments.

As steel mills are the source of employment as well as taxrevenues, each province wants to establish a steel mill of its own. This hasled to growing fragmentation of the Chinese steel industry even as othercountries are consolidating their steel sectors.

A RNCOS Research Analystsaid, “Chinese steel industry, along with the energy industry, is scaling newheights of success, thanks to the massive subsidies by the government. Thesesubsidies from the government are however contrary to the limits set by theWTO. Thus, China is putting itself in a dangerous position as rival countrieshave the right to object to the huge subsidies the China government isproviding its steel industry. This can jeopardize the growth of China’s steelbusiness.”

< Prev		Next >