China's steel producers retort upon US accusation of subsidy

Updated: 2007-08-04 15:40

Trade frictions lead nowhere only to a lose-lose situation, China's metals association told Xinhua in respond to the Unites States steel associations' complaints against China's steel exports.

The U.S. steel industry has raised anti-dumping and anti-subsidy charges against three types of Chinese steel products in the past two months, according to Chen Haoran, chairman of the China Chamber of Commerce of Metals, Minerals and Chemicals Importers (CCCMC).

"If confrontations lead to acute steel price fluctuation, no one will benefit from it," Chen said, adding the two sides should solve the problem through dialogues.

In early June, the American Iron and Steel Institute, the Specialty Steel Industry of North America and the Steel Manufacturers Association claimed that the Chinese government provided huge amount of overt and covert subsidies to steel producers.

The subsidies had resulted in China's rocketing steel output and threatened U.S. steel producers, the U.S. associations said.

"Indeed, China's only advantage is cheap work force, which makes products cheap," explained Zhang Yansheng, director of the International Economic Research Institute.

China is in the process of industrialization, so the prices of resources and materials are lower in comparison with the United States, said Zhang.

"In an office of ten square meters, two U.S. programmers can develop software worth much more than the steel produced by 100 Chinese workers toiling in a mill of 100 square meters," Zhang said.

In fact, China is pushing forward social welfare and insurance reforms to safeguard workers' interests, which would raise production costs, Zhang said, adding that it takes time as the work force supply is enormous.

Nonetheless, the price gap between U.S. and Chinese steel products expanded from about 100 U.S. dollars to more than 200 dollars per ton from 2005 to 2007, which stimulated China's steel exports, the CCCMC said.

"In a market-oriented economy, business people, either state-owned or privately-owned, just strive to pursue profits. They keep producing steel as long as the prices are lucrative," said an industry insider asked to be unidentified.

China's steel production was not wholly driven by the market as its steel consumption rose nine percent, but its steel production increased 17.7 percent between 2005 and 2006, said the U.S. steel associations.

The comments showed that the U.S. counterparts did not understand China's basic situation, replied the CCCMC.

The CCCMC explained that China's consumption of finished steel products would reach 442 million tons in 2007, which is nearly twice as much as in 1999 and more than the combination of the Europe Union, the United States and Japan.

With the gross domestic production (GDP) growing by around ten percent annually for about a dozen years, steel industry booms since houses, factories, machines and railways all consume steel in the process of urbanization and industrialization, said Zhang.

Meanwhile, the country's rocketing steel production capacity is driven by overseas investment, he said.

China is building more advanced, less energy-consuming and less emission steel factories in order to meet development demand as well as eliminate obsolete steel capacity, said the CCCMC.

But it takes time as the country has more than 1,000 steel producers and the production of privately-owned producers account for 35 percent to 40 percent, said the CCCMC.

"Local governments depend on steel producers to boost fiscal revenue and raise GDP growth," Zhang said.

China has released four measures to discourage steel export in the first half of 2007 and the result will emerge in the second half, said the CCCMC.

China exported 2.34 million tons of steel to the United States in the first six months of this year, an increase of only one percent over the same period last year, according to the CCCMC.

The Chinese government lowered export rebate rates of some special steel products and cold-rolled products to five percent beginning April 15. It then removed export rebates on 83 steel products and lifted the export tax from five to ten percent on them from June 1. Export taxes on primary steel products were also raised by five percentage points.

Due to the curbing measures, the China Iron and Steel Association secretary general Luo Bingsheng predicted at the end of July that net exports of China's crude steel are expected to drop 60 percent for the second half compared with the first six months.

Net exports of crude steel stood at 30.6 million tons for the first six months, and are forecast to fall to 12.24 million tons in the second half, Luo said.

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