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New Report Details Chinese Government Subsidies to its Steel Industry

07/31/2007 - An extensive new study has been released that concludes the Chinese steel industry has benefited from significant government subsidies, many of which violate China's World Trade Organization obligations.

An extensive new study has been released that concludes the Chinese steel industry has benefited from significant government subsidies, many of which violate China's World Trade Organization obligations.
 

The newly released report—which details more than $59 million in subsidies granted to Chinese steel producers by the Chinese government—was written by Wiley Rein LLP and sponsored by:
 
  • The American Iron and Steel Institute (AISI)
  • The Steel Manufacturers Association (SMA)
  • The Committee for Pipe and Tube Imports (CPTI)
  • The Specialty Steel Industry of North America (SSINA)
 
Expanding earlier research, this study is based on a detailed review of the financial statements of leading Chinese steel producers, including (but not limited to) Angang, Baosteel, Laiwu, Maanshan, Shougang, and Wuhan.
 
The report, “Money for Metal: A Detailed Examination of Chinese Government Subsidies to its Steel Industry”, documents more than $50 billion in subsidies granted to Chinese steel producers by the Chinese government. These subsidies have fueled unprecedented expansion of China's steel industry and a sharp increase in China's steel exports, at the expense of its international competitors. The study also found that Chinese government ownership and control of the steel industry is far greater than previously reported.

 
The report also documents a wide range of government subsidies, including:
 
·         US$ 17.3 billion (RMB 130 billion) in preferential loans and directed credit
·         US$ 18.6 billion (RMB 141 billion) in equity infusions and/or debt-to-equity swaps
·         US$ 5 billion (RMB 38.9 billion) in land-use discounts
·         US$ 1.2 billion (RMB 9.47 billion) in government-mandated mergers
·         US$ 258 million (RMB 2 billion) in direct cash grants
 
"China's massive subsidies and pervasive government control of its steel industry are unprecedented and violate WTO rules," said Alan Price, Partner at Wiley Rein LLP and one of the study's authors. "Eight of the ten largest Chinese steel groups are 100% controlled by the Chinese government, and more than 90% of the production of China's top 20 steel groups is state-controlled. This report documents the extent to which the Chinese steel industry has been fueled by subsidies, and remains controlled and directed by the government."
 
The US$ 52 billion in documented subsidies addressed in the Money for Metal report are only a portion of the subsidies that actually exist—only a limited number of Chinese steel companies were reviewed, and only partial data were reported.
 
The government subsidies revealed in the report allowed China's steel production to increase by more than 170% between 2000 and 2005, and by another 20% in 2006. China's steel capacity and production are now four to five times larger than that of the entire North American steel industry. These subsidies have also helped China become the largest single steel-exporting country by volume in 2006.
 
"The result of these massive subsidies is that China's government-controlled steel production is distorting the world marketplace, and the problem is only getting worse," said Andrew Sharkey, President of AISI. "China's overcapacity and its steel exports to the United States are skyrocketing." China's exports of finished steel products to the U.S. market more than doubled in 2006, and they have continued to increase through the first half of 2007, as compared to the same period last year.
 
"As China continues to produce steel at breakneck speed, exports will only increase, causing damage to U.S. producers and their workers," said Tom Danjczek, President of SMA. "The subsidies provided by the Chinese government give the Chinese steel industry an artificial advantage over its international competitors. China is not a low-cost producer."
 
"The domestic steel pipe, tube and fittings industry has been on the front lines in its battle to challenge trade distorting steel subsidies from China which are threatening the very existence of this critical steel sector in the U.S.," said Roger B. Schagrin, Executive Director and General Counsel of the Committee for Pipe and Tube Imports. "Pipe and tube producers recently filed the first two steel countervailing duty cases against China on circular welded pipe and rectangular tubing, which have been initiated by the Department of Commerce," he said.
 
"These massive subsidies include stainless steel producers as well," said David A. Hartquist, Counsel to the Specialty Steel Industry of North America. "SSINA will shortly publish an updating of our April 2007 report documenting newly discovered Chinese government subsidies to the stainless steel sector."
 
The four associations who sponsored the report recognize that constructive discussions, which are hoped for during the U.S.-China Steel Dialogue meeting to be held in Washington, D.C. on August 2-3, must play a role in addressing the issues detailed in this report.
 
The complete study is available at: http://www.steel.org or http://www.steelnet.org.