July 14, 2006 — A newly released economic study concludes that the Chinese steel industry has benefited from massive subsidies, and that the industry's recent explosive expansion — nearly tripling production between 2000 and 2005 from 126 to 349 million tonnes — is the direct result of government policies.

As a consequence, the Chinese steel industry, which produced more steel than the next four largest producing countries combined, has grown far beyond the size it would have reached under market conditions. This government-funded and driven expansion is already having a significant impact on the world steel market.

Sponsoring organizations — the American Iron and Steel Institute (AISI), the Steel Manufacturers Association (SMA), the Specialty Steel Industry of North America (SSINA) and the Committee on Pipe and Tube Imports (CPTI) — held a press briefing to draw attention to the study's findings and call for actions to end the Chinese government's concerted policy of subsidization of the Chinese steel industry.

"The subsidies provided by the Chinese government give the Chinese steel industry a substantial artificial advantage over its international competitors," said Alan Price, a partner with Wiley Rein & Fielding, LLP, one of the study's authors. "The Chinese government provides direct benefits to its steel industry through a number of different means, such as transfers of ownership interests on terms inconsistent with commercial considerations; conversion of debt to equity in steel companies; debt forgiveness and inaction regarding non-performing loans; preferential loans and directed credit; tax incentives; cash grants; land grants; targeted infrastructure development; manipulation of raw material prices; and manipulation of the value of the Chinese RMB. Currency manipulation in particular is especially troublesome, as it has the effect of making exports of Chinese steel and products containing steel artificially cheap, while effectively imposing a tax on imports from the United States," said Mr. Price.

According to the study, the Chinese government also provides the industry with indirect support, such as import barriers and barriers to foreign investment. China has also failed to enforce its environmental and labor laws fully. Taken together, these policies provide the Chinese steel industry with yet another artificial advantage in international competition.

These subsidies allowed China's steel production to increase by over 170% between 2000 and 2005, and exports to increase by 140% over the same period. In addition, steel imports from China into the U.S. doubled over the same time. This unprecedented increase in Chinese steel capacity would not have been possible, the study states, without the support of the Chinese government. The study notes that many of these subsidies appear to violate China's commitments to the World Trade Organization (WTO).

Sponsors of the study will continue to work with the Administration and Congress to address steel market disruptions caused by enormous Chinese subsidies. "The time is now for the U.S. government to take actions at the WTO to ensure that China abides by the letter and the spirit of its WTO obligations," said Dan DiMicco, Chairman, President and CEO of Nucor Corp.