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News for the steel industry regarding China: two good and two bad points
           

Created: 7/20/2016
Author: euractiv.sk
Category: 15/2016

Slovakian Presidency of the EU Council involves decision on market economy status for China

Recently, the European Union heard both good and bad news regarding China. On the one hand, the European Commission has started negotiations with China, and the Chinese steel-making sector is to undergo restructuring. On the other hand, Chinese representatives reject any dumping accusations, and China is increasing its steel exports.  

December is rapidly approaching, the time when according to the Accession Treaty to the World Trade Organization China should get market economy status. Pressure on Europe, suffering from excessive China steel production, is growing. 

The steel-making industry, including U.  S. Steel Košice in Slovakia, wants some solutions.

A TOPIC FOR THE SLOVAK PRESIDENCY

At this very time, Slovakia holds the Presidency of the EU Council, which has this sensitive topic on the table. It is also mentioned in the Presidency Program, in the "Foreign Trade" section, albeit in a rather indeterminate manner: "The question of awarding market economy status to the People´s  Republic of China is a considerable challenge in the legislative area.  And further discussion about more effective common steps against unfair trade practices is no less sensitive and complex." 

However, the steel-industry crisis also caused by cheap Chinese overproduction was part of last Monday's (July 18) informal meeting of the EU Ministers for Competitiveness. The ministers met in Bratislava under the leadership of the Slovak minister Peter Žiga.

The government agent for the Presidency of the EU Council, Ivan Korčok, has met with the Chinese Ambassador in Slovakia, Mr. Lin Lin. 

"Reaching a mutually-acceptable agreement between the EU and China, based on the EC draft, is the key point for the Slovak Presidency," Mr. Korčok said according to the press release of the Diplomatic Dept.

VERIFICATION AND MONITORING GROUP

The Commission discussed the market economy status for China on July 20, i.e. immediately after the meeting of the ministers in Bratislava. The Chairman of the Commission, Jean-Claude Juncker, was informed about this in Beijing where he has been discussing this topic with Li Kche-chiang, the Chinese Prime Minister.

The European executive is to adopt a set of measures that should apply to China after December. The European Parliament recently requested these steps from the executive.

The Commission has achieved progress in negotiations with the Chinese.  During last week's Beijing meeting, the EU and China agreed on establishment of a bilateral "platform". 

According to Juncker, the "Verification and Monitoring Group" will monitor fulfillment of China´s promises to reduce production capacities.

"Our Chinese friends and partners know that there is a connection between the awarding of market economy status and the VMG's results," the EU Commission Chairman told journalists. "Even though you can separate them, the general mood in Europe is that these two issues should be considered together."

WILL BREXIT CHANGE ANYTHING?

Prime Minister Li expects that the EU will award market economy award to China. He rejected the accusations of dumping and said that 90% of China steel production is consumed in China.

Only last week the Commission commenced a new anti-dumping investigation of five countries, including China, the Bloomberg Agency reports.  The Commission has been investigating whether the hot-rolled steel coils are sold in Europe at prices lower than cost.

It's not the Commission now, but rather member countries showing a lack of effort. Some member states have been blocking anti-dumping measures in the EU Council for more than two years.  Cancellation of the "lower customs duty rule" would enable imposition of higher import duties on the Chinese products. 

The Commission suggested this measure back in 2013. 

France agrees but Great Britain is against cancellation of the "lower customs duty rule". The results of the Brexit referendum from June 23 could change this situation.  However, the European Trade Ministers haven´t met since then.

GOOD NEWS ABOUT CHINESE PRODUCERS

In the meantime, the European steel producers have received some good news which they have been awaiting for a long time: Chinese steel sector restructuring.

At the end of June two large Chinese companies started negotiations about strategic "restructuring", the Financial Times reports. These companies include the Baosteel Group, the fifth largest producer of pig-iron (2015), and Wuhan Iron Steel in 11th place. After merging, these companies will become the second largest world producer after ArcelorMittal.

According to the Financial Times, other sectors are also suffering due to the kind of companies called "zombies".  These companies have been growing during the economic boom and central government has been building infrastructure for them. With the recent slowdown in growth though, demand for production of these companies has dropped. However, local governments are defending them against restructuring due to the risk to employment levels and tax incomes. Even Prime Minister Li is pushing the Chinese companies towards reforms. At the end of June he promised to reduce the production capacities by 150 mil. tons of steel by 2020. Today, the Chinese capacity is 1.13 bil. tons.  Production from China satisfies half of the world consumption.

...AND BAD NEWS ABOUT CHINESE PRODUCTION

Meanwhile, cheap Chinese exports are still growing.  According to the Bloomberg Agency, exports in June reached the second highest level ever at 10.94 mil. tons, which means an increase of 23% in comparison with the previous year. Higher monthly exports from China were recorded only last September at 11.25 mil. tons.

During the first six months of this year, China exported 57.12 mil. tons in total.  This is historically the highest level in comparison with the same period in past years.

During the summit in China, Mr. Juncker criticized the growing exports to Europe. He cited the Chinese data, showing that Chinese exports in the first quarter were higher by 28%.

The prices in the same period dropped by 31%.

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