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Ambassador Tian Xuejun Gives an Interview to the South African Media on Production Capacity of the Global Steel Industry
(From Chinese Embassy in South Africa)
2016/05/27

On May 26, Ambassador Tian Xuejun gave an interview to the Independent Media on the production capacity of the global steel industry. In his interview, Ambassador Tian pointed out the underlying factors of the overcapacity in the steel industry, introduced the de-capacity policies and measures taken by the Chinese government and called for win-win cooperation on steel industry between the two states. Newspapers of the Independent Media such as Star, Pretoria News, Cape Times, The Mercury published the interview. The full text goes as follows,

Q: What do you think of some people's blame for the global steel glut on China?

A: The overcapacity in the steel industry is a global issue,not only faced by China, but also by Europe, US and other major economies as well. It is true that China is a major steel producer, but China is also a major steel consumer at the same time. Around 90% of the steel it produces is for its own development.

The overcapacity problem in steel is both cyclical and structural. The sluggish global economic growth in recent years has led to a lack of demand in steel. The accumulated steel capacity by the countries during economic booming cannot be digested within a short period. Both factors have contributed to a massive oversupply. Meanwhile, despite the loss of their competitive low-cost-producer edge, some developed countries try to protect their steel capacity for the sake of employment, which contributes partly to the global overcapacity as well.

To resolve the overcapacity issue, it makes no sense to blame each other. Protectionist measures also won't get to the root of the problem, but only further impact the global trade order.

Q: What kind of measures have both the Chinese government and enterprises taken to ease the global steel overcapacity?

A: China is pushing vigorously for the supply-side structural reform. One of the major tasks is to digest our own steel overcapacity. Over the past 3 years, China has eliminated more than 900 million tons of backward steel capacity, another 100-150 million tons of steel capacity will be phased out in the next 5 years.

To sustain the efforts in steel de-capacity, Chinese central government has demanded local governments not construct new steel mills while the current mills should not expand capacity. At the same time, we are putting in place even stricter standards in environment protection, production safety, energy efficiency and quality control to further slash backward capacity.

The implemented and upcoming plans in de-capacity in the steel industry will translate into as many as 1 million lost jobs, 3 times the total number of steel workers in EU. It poses an arduous task for the Chinese government to redeploy and support steel workers, but this won't shake our resolve towards the goal.

Q: Has the Chinese government subsidized its steel companies to give them an unfair trade advantage?

A: As a member of WTO, China always abides by world trade rules. Not only has it never subsidized steel export, it has even imposed tariffs on the exports of certain kinds of steel products, an action never taken by other steel producing countries.

China's competitiveness in the global steel market comes from our plants' competitive strengths in labor cost, scale, technology, and supply chains. Taking labor cost as an example, in the US, a steel worker's annual income amounts to $60,000, while in China it is only $20,000. Weak commodity prices also pushes the cost of China's steel further down, but steel producers in some countries cannot benefit from the price slump of commodities since they use scrap steel as raw materials.

Some countries accuse China of dumping steel because they use the price of steel in a "surrogate country" to pursue anti-dumping claims. The price will be certainly in their favor, but cannot reflect the real cost of China's steel products at all. According to WTO's Protocol on the Accession of China, other members in WTO have the obligation to stop the practice of using a "surrogate country" in anti-dumping investigations by December of this year.

Q: I took note of the reports on steel production as South African steel producers keep calling for the government to take measures to protect this industry. What are your views on the prospect of cooperation on steel production between China and South Africa in the future?

A: Africa is going through industrialization and integration, which will generate huge demand for steel. In the meantime, the FOCAC Joburg Summit held last December gives new impetus to the cooperation on production capacity and development of infrastructure facilities between China and Africa, which will further create and unleash new potentials of African steel market. The South African steel industry enjoys a solid basis, while China's steel producers are strong in technology and funding, both sides can take full advantage of our strengths in joint development of African market.

The steel industry plays an important role in South Africa's reindustrialization. The production and business of a large batch of downstream industries including auto manufacturing could also be influenced by steel price. Therefore South African government is cautious in taking trade protectionist measures.

We have noticed that recently the International Trade Administration Commission of South Africa has waged trade protection measures investigation on steel import. There is a sound mechanism between China and South Africa in trade disputes settlement. I believe we can find an appropriate solution through friendly dialogue and consultation.

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