China and Rebalancing the Global Iron and Steel Trade
The G20 summit in Hangzhou - held in September - was the first meeting of national leaders that was able to reach a consensus on how to deal with overproduction of iron and steel,an issue that has attracted widespread concern. The global economy is in an adjustment phase and the iron and steel industry is undergoing a transformation begun at the start of the new century. China,the most important emerging country in the iron and steel sector,faces new and changing circumstances at home and abroad. In addition to surplus production,the major shifts in the trading environment include the urgent need to upgrade iron and steel technology,a sharp rise in steel exports,trade friction and pressure for greater dialogue with global players. This article discusses the changes confronting China's iron and steel business and the policies that should be used to address these changes,from the perspective of attaining a rebalancing of the global trade.
The difficulties facing China's iron and steel business reflect the fact that global production is undergoing a transformation and an across-the-board technological upgrading is a painful but necessary process. China needs to adjust its external policies regarding its iron and steel business based on the changing situation. It must actively participate in international dialogue at different levels,including gatherings such as the G20. This will help balance competition and cooperation among the bigger players in the iron and steel sector.
China will actively promote its exports and regulate inventories in a pragmatic management fashion. Its aim will be to tap the potential of the international iron and steel trade by creating opportunities for cooperation and development among developing countries and the modern world. The "One Belt,One Road" initiative,which seeks to promote trade and infrastructure development in emerging economies,should also promote the world's iron and steel business in a generally stable and open environment.
In recent years,new features have emerged in the external situation for China's iron and steel business. First,there has been relatively fast growth in China's iron and steel exports as well as their global market share. China's iron and steel business expanded dramatically at the beginning of the new century,helped by an undervaluation of the currency. This was used to promote import substitution as well as exports in iron and steel.
Iron and steel exports were 7.35 million tons in 2002 and reached 73.07 million tons in 2007. Net imports of iron and steel stood at 38.41 million tons in 2003,but that had shifted to net exports of 54.88 million tons by 2007. But a slump in international demand for iron and steel after the global financial crisis coupled with China's massive government stimulus scheme (4 trillion yuan in fiscal spending) resulted in a shift to the domestic market and a fresh slump in exports. In 2009,China's iron and steel exports fell to 26.18 million tons and net exports slid to 2.84 million tons. In more recent years,thanks to further market adjustments,China's iron and steel business has flourished once again. In 2014,China's iron and steel exports climbed to 99.93 million tons and net exports reached 84.19 million tons.And in 2015 China's iron and steel exports rose to 119.6 million tons while net exports reached 105.7 million tons. China's iron and steel exports accounted for 15.3% of all global exports compared with only 2.6% in 2003.
Trade Friction
Trade friction related to China's iron and steel has been growing. In the 1990s,China's iron and steel sector suffered badly from trade friction,and in more recent years friction has emerged again. According to official World Trade Organization data,there was an average of more than 16 anti-dumping cases a year in the iron and steel sector between 2008 and a record high of 24 was reached in 2015.There was an average of over 12 anti-dumping cases a year that went to arbitration in the steel plate sector between 2008 and 2015,with a record 20 filed in 2013. The anti-dumping cases for iron and steel were 29.56% of all anti-dumping cases involving China in the same 2008-2015 period and 29.26% of all cases that went to arbitration. Steel was at the top of the list for trade disputes.
Overproduction in iron and steel has been a significant part of bilateral and multi-lateral trade discussions,involving China and the US and China and the EU among other parties. In July 2014,the 6th Strategic and Economic Dialogue between China and the US highlighted the overproduction of iron and steel. Since the end of 2015,pressure from the US and the EU has been mounting for action on steel. For instance,in November 2015,nine iron and steel associations,including the US Iron and
Steel Institute and the European Iron and Steel Union,issued a joint declaration questioning China's qualifications for market economy status as agreed upon in the nation's accession agreement to the WTO. In April 2016,the Iron and Steel Committee of the Organization for Economic Cooperation and Development held a ministerial level meeting on iron and steel,bringing together the trade departments of more than 30 countries. In May 2016,the European parliament issued a non-binding resolution opposing China's market economy status. That resolution particularly pointed to the overproduction of Chinese iron and steel. More recently,this issue figured prominently in Shanghai at the G20 trade ministers meeting as well as the G20 finance ministers and central bank governors meeting in Chengdu as well as the G20 summit in Hangzhou.
Rebalancing the Iron and Steel Trade
What conclusions can we make on the external changes affecting China's iron and steel industry? We can certainly see this as a rebalancing of the global trade,and we can see there is a shift from a protracted downward trend. It could signal a reshuffling of the pattern of production that will create a healthy long-term outlook for the industry overall.
Once the total volume of output and consumption as well as its growth path are determined,the inter-dependency of the world iron and steel trade mainly relies on the potential profits resulting from expanding trade and real cost levels. The differences in relative advantages determine the scale of potential profit,while geography and ocean cargo technology determine transport costs. Policies within global trade institutions determine the institutional trade costs,which is the real constraining factor in the expansion of trade. Together these factors determine the extent of global trade integration.
The international steel trade dates back to the early 19th century when Britain exported manufactured wrought iron products,such as railway track,to America. The US became a major iron and steel exporter in the first half of the 20th century and promoted trade on a global scale. It later enjoyed unprecedented growth due to the great reduction in institutional and transport costs after World War II. But Japan and Germany eventually overtook the US in production efficiency,and by 1959 - a time of substantial labor unrest in the US - the industry reached a key turning point.
China initially relied on imported steel to support its economic growth. In 1969,it imported 1.68 million tons of iron and steel; and in 1978-1979,as it began its economic reforms,it imported 8.3 million tons. By the early 1980s,imports had soared to nearly 20 million tons,making China one of the world's bi