Study details Chinese steel industry subsidies

July 13, 2006

An economic study released today concluded that the Chinese steel industry has benefited from massive subsidies, and that the industry's recent explosive expansion, nearly tripling production between 2000 and 2005 from 126 to 349 million metric tons, is the direct result of government policies. As a consequence, the Chinese steel industry, which produced more steel than the next four largest producing countries combined, has grown far beyond the size it would have reached under market conditions. This government-funded and driven expansion is already having an enormous impact on the world steel market.

On behalf of its member companies and their employees, the American Iron and Steel Institute (AISI), the Steel Manufacturers Association (SMA), the Specialty Steel Industry of North America (SSINA), and the Committee on Pipe and Tube Imports (CPTI), who sponsored the study, held a press briefing today to draw attention to the study's findings and call for actions to end the Chinese government's concerted policy of subsidization of the Chinese steel industry.

"The subsidies provided by the Chinese government give the Chinese steel industry a substantial artificial advantage over its international competitors," said Alan Price, a partner with Wiley Rein & Fielding, LLP, one of the study's authors. "The Chinese government provides direct benefits to its steel industry through a number of different means, such as transfers of ownership interests on terms inconsistent with commercial considerations; conversion of debt to equity in steel companies; debt forgiveness and inaction regarding non-performing loans; preferential loans and directed credit; tax incentives; cash grants; land grants; targeted infrastructure development; manipulation of raw material prices; and manipulation of the value of the Chinese RMB. Currency manipulation in particular is especially troublesome, as it has the effect of making exports of Chinese steel and products containing steel artificially cheap, while effectively imposing a tax on imports from the United States," said Price.

According to the study, the Chinese government also provides the industry with indirect support, such as import barriers and barriers to foreign investment. China has also failed to enforce its environmental and labor laws fully. Taken together, these policies provide the Chinese steel industry with yet another artificial advantage in international competition.

These subsidies allowed China's steel production to increase by over 170 percent between 2000 and 2005, and exports to increase by 140 percent over the same period. In the same period, steel imports from China into the U.S. doubled. This unprecedented increase in Chinese steel capacity would not have been possible, the study stated, without the support of the Chinese government. The study noted that many of these subsidies appear to violate China's commitments to the World Trade Organization (WTO).

The sponsors of the study said they will continue to work with the Administration and Congress to address steel market disruptions caused by enormous Chinese subsidies. "The time is now for the U.S. government to take actions at the WTO to ensure that China abides by the letter and the spirit of its WTO obligations," said Dan DiMicco, chairman, president, and CEO of Nucor Corp.