China’s overcapacity in heavy industries is wreaking “far-reaching” damage on the global economy, with steel production “completely untethered” from market demand, the EU Chamber of Commerce in China said yesterday.
The Asian giant’s steel industry manufactures more than the next four largest producers — Japan, India, the US and Russia — combined the chamber said in a report, adding that more than 60 percent of China’s aluminum industry has negative cash flow.
In just two years, its cement production equaled the amount produced in the US during the entire 20th century.
“China has not followed through on the attempts it has made over the last decade to address overcapacity,” EU Chamber of Commerce in China president Joerg Wuttke said in a statement.
Brussels has launched new anti-dumping probes into Chinese steel imports, as producers in both Europe and Asia struggle with global prices that have plummeted in the face of oversupply.
“Overcapacity has been a blight on China’s industrial landscape for many years now, affecting dozens of industries and wreaking far-reaching damage on the global economy in general, and China’s economic growth in particular,” the report said.
The issue has led to trade tensions between the world’s second-largest economy and developed nations that accuse it of dumping in their markets.
China accounts for half of global steel production, but internal demand has slowed sharply along with economic growth, forcing it to look overseas.
Its steel exports soared 20 percent last year, according to Chinese General Administration of Customs data.
The EU this month launched probes into imports of Chinese steel, with EU Commissioner for Trade Cecilia Malmstroem saying: “We cannot allow unfair competition from artificially cheap imports to threaten our industry.”
This month, Luxembourg-based world leader in steelmaking ArcelorMittal blamed China for a colossal US$8 billion loss last year, at a time when thousands of jobs are being cut across the industry.
However, many Chinese steel firms are also losing money, and Beijing has announced plans to cut production by as much as 150 million tonnes over the next five years.
Despite authorities’ vows to tackle excess production, the EU chamber report said Beijing’s prioritization of industrial policies over consumption means “the Chinese government’s current role in the economy is part of the problem.”
It said the government needs “a willingness to change itself.”
“We are now in a far more worse position than we were before,” Wuttke said. “Beijing increasingly has the same problems as Brussels: making things happen. That was not the case 10 or 15 years ago. Local protectionism is very strong.”
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