Shedding Light on Energy Subsidies in China: An Analysis of China’s Steel Industry from 2000-2007

Usha C.V. Haley

This report commissioned by the Alliance for American Manufacturing (AAM), shows that the Chinese government has exponentially boosted its steel output in the past decade through massive, trade-distorting energy subsidies.

Total energy subsidies to Chinese steel from 2000 to mid-year 2007 reached $27.11 billion. Despite China’s entry to the World Trade Organization (WTO) in 2002, energy subsidies grew, totaling $25.07 billion through mid-year 2007. These energy subsidies include supports for thermal and coking coal, electricity and natural gas. 

“Chinese subsidies exist, they are enormous and they are shaping the global steel market,” said the report’s author, Usha C. V. Haley, Ph.D.

China has identified steel as a strategic industry, and both the central and provincial governments have decided to ramp up steel production with massive subsidies that now have been confirmed.

China is the largest producer and consumer of steel in the world, accounting for 40 percent of the global market. Much has changed for China’s steel industry in the last five years. In 2005, China went from a net steel importer to a steel exporter. In 2006, China became the largest steel exporter in the world by volume, up from fifth largest in 2005. This enormous increase in production has come at a cost for U.S. manufacturing; more than 1.8 million U.S. jobs have been displaced since China joined the WTO, according to the Economic Policy Institute.

“This shift from a net importer to the largest exporter in a span of only two or three years is staggering,” said Dr. Haley. “Our analysis shows that energy subsidies have a very strong correlation with Chinese steel exports. In fact, the connection is so clear that, essentially, it’s possible to almost perfectly predict China’s steel exports from its energy subsidies.”

Conducting an extensive market-based study was a difficult and daunting task. “There is an absolute lack of transparency and people were afraid to talk to us. The amount of the subsidies is enormous and they are conservatively estimated in this report,” said Haley. In her report, Dr. Haley notes that Chinese energy subsidies fell in 2002 and 2003, after China joined the WTO. However, the subsidies surged in 2004 and have continued to grow exponentially. From 2000 to 2006, China’s total energy subsidies to steel grew by 1365 percent. In 2007, energy subsidies to Chinese steel are estimated at approximately $15.7 billion, showing a 3800 percent increase since 2000.

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