A new report documents how China’s propping up its steel mills and flooding the world with artificially cheap steel.
China has told the world that it’s doing its best to tamp down rampant steel overcapacity. And yet, this year’s Chinese steel exports have skyrocketed to a record high that the nation hasn’t hit since 2016, with even more plants already approved for construction and expected to enter the market in the coming two years.
There’s an irrefutable disconnect here that no amount of rhetoric or promises from Beijing can conceal: China continues to heavily tip the global market in its domestic steel manufacturers’ favor. A new report entitled “Shell Game: Case Studies in Chinese Steel Subsidies” corroborates just that.
In the study from D.C. law firm Wiley Rein LLP, the authors dive into Beijing’s tactics with an examination of three Chinese steel pipe and tube manufacturers (one state-owned enterprise and two small or medium enterprises that are nominally private) from 2016-2020 and 2021-2025.
Tracking these companies and the governmental intervention and subsidies they receive evidences that China’s steel mills are as mired as ever in gross market manipulations. While Beijing is eager to “talk the talk” when it comes to reducing industrial overcapacity, it is most certainly not “walking the walk.” In fact, it’s been sprinting full speed in the opposite direction.
The report states:
“Each of these three companies reveals broader aspects of Chinese industrial policy in the steel industry that run directly counter to the slogans and catchphrases meant to convey impressions of market-based reform. Despite repeated pledges to reduce steel industry overcapacity, the Chinese government continues to systematically intervene to support both perpetuation of uncompetitive existing capacity and expansion of new capacity through state-directed mergers, relocations, and facility upgrades, all backed with generous financial and other support.”
Indeed, the report documents that the Chinese companies they study have been unfairly pulled back from the brink of dissolution by interest-free government loans and other financial services “that expand the state-directed financial sector’s role in supporting government industrial policy and dramatically reduce the capital costs of Chinese steel firms.” China’s efforts to move steel mills into concentrated industry parks has been paired with “capacity replacement policy support” that funds facility upgrades and expansions that hugely increased output.
“These three companies each exemplify in their own ways some of the major distortions that follow from the Chinese government’s recent industrial policy initiatives,” the report states. “All three companies are emblematic of the ongoing challenges that China’s state-backed steel industry poses to overseas competitors seeking to shore up critical supply chains and invest in a more sustainable future.”
Here’s the thing about all this, though: The world is [finally] catching on. On Aug. 26, Canada announced tariffs on Chinese steel and aluminum following the Biden administration’s tariff increases earlier this summer on Mexican steel and aluminum that originates in China. And, of course, Chinese industrial overcapacity as a whole has been pronounced as a leading threat by countries around the world.