December 02, 2008
New US industry sponsored reports huge subsidy support to Chinese steel sector
A newly released study in US has concluded that the Chinese steel industry has benefited from massive government subsidies, many of which violate China’s World Trade Organization obligations. The report titled “Money for Metal: A Detailed Examination of Chinese Government Subsidies to its Steel Industry” documents more than USD 50 billion in subsidies granted to Chinese steel producers by the Chinese government. It said that these subsidies have fueled the unprecedented expansion of China’s steel industry and the sharp increase in China’s steel exports at the expense of its international competitors. The study also found that Chinese government ownership and control of the steel industry is far greater than previously reported.
The report documents a wide range of government subsidies, including the following
1. USD 17.3 billion (CNY 130 billion) in preferential loans and directed credit.
2. USD 18.6 billion (CNY 141 billion) in equity infusions and or debt to equity swaps
3. USD 5 billion (CNY 38.9 billion) in land use discounts
4. USD 1.2 billion (CNY 9.47 billion) in government mandated mergers
5. USD 258 million (CNY 2 billion) in direct cash grants.
Mr Alan Price partner at Wiley Rein LLP and one of the study’s authors said that “China’s massive subsidies and pervasive government control of its steel industry are unprecedented and violate WTO rules. Eight of the 10 largest Chinese steel groups are 100% controlled by the Chinese government, and more than 90% of the production of China’s top 20 steel groups is state controlled. This report documents the extent to which the Chinese steel industry has been fueled by subsidies, and remains controlled and directed by the government.”
The USD 52 billion in documented subsidies discussed in Money for Metal are only a fraction of the subsidies that actually exist, due to the limited number of Chinese steel companies reviewed and the partial nature of the data that even these companies reported. Government subsidies allowed China’s steel production to increase by more than 170% between 2000 and 2005 and by another 20% in 2006. China’s steel capacity and production are now four to five times larger than that of the entire North American steel industry. Subsidies have also helped China become the largest single steel exporting country by volume in 2006.
The study, written by Mr Wiley Rein LLP and sponsored by the American Iron and Steel Institute, the Steel Manufacturers Association, the Committee for Pipe and Tube Imports and the Specialty Steel Industry of North America expands earlier research through a detailed review of the financial statements of leading Chinese steel producers, including but not limited to Angang, Baosteel, Laiwu, Maanshan, Shougang and Wuhan. The four associations who sponsored the report recognize that constructive discussions, which are hoped for during the US China Steel Dialogue meeting to be held in Washington DC on August 2nd to 3rd 2007, must play a role in addressing the issues detailed in this report. An executive summary is attached.
Mr Andrew Sharkey president of AISI said that “The result of these massive subsidies is that China’s government controlled steel production is distorting the world marketplace and the problem is only getting worse. China’s overcapacity and its steel exports to the United States are skyrocketing.”
Mr Tom Danjczek president of SMA said that “As China continues to produce steel at breakneck speed exports will only increase, causing damage to US producers and their workers. The subsidies provided by the Chinese government give the Chinese steel industry an artificial advantage over its international competitors. China is not a low-cost producer.”
Mr Roger B Schagrin executive director and general counsel of the CPTI said that “The domestic steel pipe, tube and fittings industry has been on the front lines in its battle to challenge trade distorting steel subsidies from China which are threatening the very existence of this critical steel sector in the U.S.”. He added, “Pipe and tube producers recently filed the first two steel countervailing duty cases against China on circular welded pipe and rectangular tubing, which have been initiated by the Department of Commerce.”
Mr David A Hartquist counsel to the Specialty Steel Industry of North America said that “These massive subsidies include stainless steel producers as well. SSINA will shortly publish an updating of our April 2007 report documenting newly discovered Chinese government subsidies to the stainless steel sector.”
