Although China is experiencing booming growth in its steel industry due to massive subsidies provided by the government, these are against the WTO norms and may land the country in trouble.
As per the findings of a study revealed by the Alliance for American Manufacturing on January 8, 2007, China has emerged as the largest producer and exporter of steel in the world on the strength of major government energy subsidies, reported Reuters.
The study estimates the energy subsidies to Chinese steel industry in 2007 at $15.7 Billion, a whooping 3,800% rise from 2000. Through comparisons between Chinese and world prices for thermal coal, coking coal, natural gas and electricity, the report found energy subsidies for the Chinese steel sector to be $27.11 Billion from 2000 through mid-2007.
The International Iron and Steel Institute revealed that China produced 37% of global steel production through the initial 11 months of 2007, increasing from 34% for the entire 2006. In the first 11 months of 2007, China’s steel production was measured at 446 Million Metric Tons against 90 Million Metric Tons by the US.
It is the Chinese government which is behind the concrete position of the steel industry. Its development has been aided tremendously by huge direct and indirect subsidies even though many of them are in violation of the World Trade Organization (WTO)’s subsidies and/or the obligations of the country to its WTO accession agreement.
The energy subsidies are characteristic of China’s blatant subsidization and illegal activities like currency manipulation. Chinese steelmakers benefited from over $50 billion in subsidies during the summer of 2007. Most of the subsidies is with the Chinese provincial and local governments.
As steel mills are the source of employment as well as tax revenues, each province wants to establish a steel mill of its own. This has led to growing fragmentation of the Chinese steel industry even as other countries are consolidating their steel sectors.
A RNCOS Research Analyst said, “Chinese steel industry, along with the energy industry, is scaling new heights of success, thanks to the massive subsidies by the government. These subsidies from the government are however contrary to the limits set by the WTO. Thus, China is putting itself in a dangerous position as rival countries have the right to object to the huge subsidies the China government is providing its steel industry. This can jeopardize the growth of China’s steel business.”
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