SINGAPORE The usual chorus
of indignation from China's steel industry followed the U.S.
government's imposition of stringent anti-dumping and
countervailing measures against welded steel pipe from
The measures will effectively wipe out the
U.S. market as a destination for Chinese welded pipe, and the
Chinese producers are understandably unhappy. As in all of
China's myriad trade disputes, various bodies in Beijing asked
that the "long-term interests of Sino-U.S. trade" be taken into
account, and appealed for harmony and better understanding.
There is some politicking on both sides, but
in general the opacity of Chinese industry makes it easy to
assume wrongdoing. And often that's been the case, with U.S.
lobby groups alleging that the Chinese steel industry benefits
from huge energy subsidies.
Across the board, whether it be pipe to the
United States or any product exported to a different, sensitive
market, the Chinese are fighting a variety of disputes, and the
way their internal markets work doesn't inspire much
Take the case of stainless products. Exports
of stainless strip from China have caused consternation in
various markets as producers in developed countries try to
understand how the Chinese are able to achieve such low prices.
One of the most recent revelations to come out of China is that
the stainless producers and their raw material suppliers may be
working in collusion to allow steelmakers to procure raw
materials at below-cost price, and therefore sell on the market
at highly competitive prices. Stainless steel producers give a
subsidy to producers of cheap nickel pig iron in order to allow
them to sustain output of the material, which is much cheaper
than buying refined nickel.
There is some doubt as to whether this form
of profit-sharing is illegal according to international rules,
but it's certainly not the kind of thing that any overseas
stainless producer is going to be particularly happy about.
Could they, or would they, enter into a similar arrangement
with their suppliers?
The stainless market provides a front-row
seat from which to view China's collegial way of doing business
in action. Stainless producers get together every month to
decide how to approach the market for the following month. The
meetings-led by China's largest stainless steelmaker, Taiyuan
Iron & Steel (Group) Co. Ltd.-tend to set both prices and
production volumes. It's a collective effort to steer the
market, which is practiced somewhat openly in China but just
about everywhere else would be called collusion.
That's not to say such practices do not go on
elsewhere, but they likely would be illegal and thus conducted
in a more clandestine fashion. In China, where the industry
remains solidly backed by the state, it is the norm.
Most foreign companies with a presence in the
Chinese market simply shrug their shoulders and say "this is
China" when discussing such matters, but can Beijing really
expect to generate the international harmony it desires while
its markets are operated in such a manner?
There has been a lot of concern on China's
part not to upset its foreign partners, but the principal
method for avoiding this has involved changes to the country's
export tax regime. When a problem arises in a particular
market, the government slaps on an export tax; if it doesn't
work, it increases the tax.
Export taxes amount to a rather clumsy,
retroactive way of approaching the problem and deliver mixed
results-the country's steel exports have ominously started
rising again. The latest figures showed that total exports rose
well beyond 5.5 million tonnes in May, marking the third
monthly increase in a row despite assurances from Beijing that
the problem was under control.
In one sense, China is trying to tackle the
root causes of these issues. It is confronting the
fragmentation of its steel sector and attempting to exert more
discipline over the industry. But many argue that there needs
to be a lot more progress made in regards to the way its
internal markets function.
While much overseas criticism aimed at China
could be little morethan political bluster and at least some of
the trade actions against China questionable, it remains to be
seen if Beijing will stop appealing to the kinder, gentler
nature of foreign counterparts and develop a more concrete
approach to these pressing issues.