Mar­ket econ­omy sta­tus not a bi­lat­eral ne­go­ti­a­tion

China Daily (Canada) - - LIFE -

The pro­tec­tion­ist sen­ti­ment and the con­fronta­tional ap­proach that have emerged in the Euro­pean Union are wor­ry­ing, as well as be­ing re­gret­table and mis­lead­ing. On Fri­day, the Euro­pean Com­mis­sion opened newanti-dump­ing in­ves­ti­ga­tions on steel prod­ucts orig­i­nat­ing from China, and the Euro­pean steel in­dus­try or­ga­nized a demon­stra­tion against so-called Chi­nese dump­ing in the EU mar­ket and the grant­ing ofMar­ket Econ­omy Sta­tus to China.

No­body should be un­der any il­lu­sion: over­ca­pac­ity, in­clud­ing ex­cess ca­pac­ity in the global steel sec­tor is one of the many chal­lenges we are all faced with. Not only the Euro­pean steel in­dus­try has been hard hit, iron and steel in­dus­tries in China and many other emerg­ing economies are suf­fer­ing badly from ex­ces­sive pro­duc­tion and flag­ging de­mand.

Ac­cord­ing to some es­ti­mates, cut­ting back the over­ca­pac­ity in China by 30 per­cent in those in­dus­tries with most ex­cess ca­pac­ity— iron and steel, coal, ce­ment, ship­build­ing, alu­minum and flat glass— is ex­pected to af­fect the em­ploy­ment of 3 mil­lion work­ers.

Not to men­tion that China is also con­fronted with many other daunting tasks: lift­ing 70 mil­lion peo­ple out of poverty, ad­vanc­ing in­dus­tri­al­iza­tion to trans­form China into a post-in­dus­trial so­ci­ety, re­bal­anc­ing the econ­omy from in­vest­ment and net ex­ports to con­sump­tion and in­no­va­tion.

The sit­u­a­tion is se­ri­ous and re­quires a re­sponse.

But what kind of re­sponse? Grum­ble, curse, cut the ground from un­der other’s feet? Re­treat into pro­tec­tion­ism and be at each other’s throats?

If his­tory serves as a guide, th­ese are un­wel­come if not ir­re­spon­si­ble re­sponses. They may help to give vent to the anger and frus­tra­tion of some and ob­tain short-term gains, but they fail to serve the com­mon long-term in­ter­ests of all.

Ob­vi­ously the re­sponse to the chal­lenges is up to each and ev­ery coun­try. I only wish to share what we be­lieve to be the best pos­si­ble ap­proach and op­tion, and what China has been do­ing and will con­tinue to do with re­gard to the is­sue.

First, di­gest the prob­lem and not dump it onto other’s doorsteps.

The de­vel­op­ment of the steel in­dus­try in China has been mainly to meet its do­mes­tic de­mand, rather than to ex­port prod­ucts to other coun­tries.

To ef­fec­tively deal with the over­ca­pac­ity prob­lems, China has taken tough mea­sures to con­trol new­ca­pac­ity. Painful as it is, China has cut its steel in­dus­try ca­pac­ity by more than 90 mil­lion tons over the past few years and its in­vest­ment in iron and steel as­sets by 13 per­cent last year. The growth of Chi­nese steel pro­duc­tion has ba­si­cally come to a halt.

To con­tinue to ad­dress over­ca­pac­ity in a se­ri­ous and res­o­lute man­ner, China has made elim­i­na­tion of over­ca­pac­ity the top pri­or­ity for this year and will cut the steel in­dus­try ca­pac­ity by an­other 100 to 150 mil­lion tons.

Se­cond, take the tack­ling of over­ca­pac­ity as an op­por­tu­nity to ac­cel­er­ate eco­nomic re­struc­tur­ing. The Chi­nese word for “crises” is made up of two char­ac­ters, cri­sis and op­por­tu­nity. Guided by our con­ven­tional wis­dom that op­por­tu­ni­ties are em­bed­ded in crises and that we must be good at get­ting to grips with them, China is push­ing through es­sen­tial re­forms and re­struc­tur­ing against all the odds.

Be­ing fully aware that much of China’s in­dus­trial over­ca­pac­ity is heav­ily con­cen­trated at the lower end of the value curve, we have taken re­struc­tur­ing of the iron and steel sec­tor as an im­por­tant part of our en­deavor to com­plete the dif­fi­cult tran­si­tion of mov­ing China away from an in­vest­ment-led econ­omy to a con­sumer-ori­ented one.

China is ac­tively re­struc­tur­ing the steel sec­tor by elim­i­nat­ing out­moded ca­pac­ity, cre­at­ing exit strate­gies for “zom­bie com­pa­nies” based on mar­ket rules, and en­cour­ag­ing pro­mo­tion of in­no­va­tion, tech­nol­ogy, qual­ity and man­age­ment to meet pro­duc­tion safety, en­ergy con­sump­tion and en­vi­ron­men­tal pro­tec­tion stan­dards, and en­sure the ef­fec­tive sup­ply of high qual­ity prod­ucts.

In ad­di­tion, we have put in place stricter su­per­vi­sion over lo­cal au­thor­i­ties to guard against ex­cess pro­duc­tion and ten­dency to pro­tect en­ter­prises with fa­vor­able poli­cies.

Third, sup­port the train­ing and re­lo­ca­tion of work­ers for newjobs to min­i­mize the neg­a­tive im­pacts of trans­for­ma­tion.

Like else­where in the world, the pres­sure of glob­al­iza­tion and re­form and re­struc­tur­ing

has had im­pacts on Chi­nese so­ci­ety. Re­struc­tur­ing of the iron and steel sec­tor has given rise to con­cerns and wor­ries. Yet, there is a com­mon un­der­stand­ing that change for the bet­ter in­volves a price and pain.

This time around, the Chi­nese govern­ment has taken mea­sures to help re­dun­dant la­bor change ca­reer paths. Among other things, the cen­tral govern­ment is set­ting up a spe­cial fund to re­train work­ers and sup­port lo­cal govern­ment ef­forts to re­duce over­ca­pac­ity.

And with re­bal­anc­ing un­der­way in the Chi­nese econ­omy and with nu­mer­ous new in­dus­tries emerg­ing, it is far eas­ier now to get newand bet­ter-paid jobs than it was in the late 1990s when the coun­try’s in­ef­fi­cient State-owned in­dus­tries were re­formed.

This should also mean China can rely more on do­mes­tic con­sump­tion, in­stead of pour­ing yet more con­crete in a coun­try that has al­ready built too many steel mills and ce­ment plants.

Fourth, stay the course of trans­for­ma­tion against the head­winds.

Chi­nese at­ti­tudes to life have been shaped and molded by the coun­try’s great in­tel­lec­tual legacy of the past thou­sands of years, the val­ues as­so­ci­ated with Lao Tzu, Con­fu­cius andMozi, in­clud­ing the wis­dom that heaven main­tains vigor through move­ment and that peo­ple should con­stantly strive for per­fec­tion of the self.

And the many vi­cis­si­tudes we have gone through have taught us that main­tain­ing the sta­tus quo and pro­tect­ing un­der­per­form­ing sec­tors is only a tem­po­rary adap­ta­tion to cir­cum­stances rather than a longterm so­lu­tion.

To be com­pet­i­tive we have to live with the world as it is and when the world changes we must be nim­ble and seize the op­por­tu­ni­ties that come with chal­leng­ing cir­cum­stances and swiftly ad­just our­selves in a prag­matic and clin­i­cal man­ner. Un­doubt­edly, the un­fold­ing newnor­mal and struc­tural trans­for­ma­tion may be more painful and pro­longed than the eco­nomic

re­forms of the late 1990s, since the re­struc­tur­ing of up­stream in­dus­tries will be more ar­du­ous and dif­fi­cult.

Yet to achieve high-qual­ity, ef­fi­cient and sus­tain­able growth is not an im­pos­si­ble dream. We are de­ter­mined to en­dure the hard­ships and have the strength, de­ter­mi­na­tion and will­ing­ness to see its re­al­iza­tion.

Fifth, China re­mains com­mit­ted to open­ing-up to achieve in­ter­na­tional com­pet­i­tive­ness and pro­mote win-win co­op­er­a­tion.

In our glob­al­ized world, we are in­ter­de­pen­dent. This is not an op­tion but a re­al­ity. Our progress and achieve­ment has also re­sulted in grow­ing for our global part­ners, es­pe­cially our strate­gic part­ners.

Given this, we are work­ing closely with our neigh­bors and the neigh­bors of our neigh­bors to es­tab­lish the Silk Road Eco­nomic Belt and 21st Cen­tu­ryMar­itime Silk Road, which will forge closer eco­nomic ties, deepen co­op­er­a­tion and ex­pand de­vel­op­ment in the Eurasian re­gion, and ul­ti­mately cre­ate a com­mu­nity of com­mon in­ter­ests and shared des­tiny and re­spon­si­bil­i­ties.

We are also ex­pand­ing op­por­tu­ni­ties for both China and the EU by in­creas­ing mar­ket ac­cess and lev­el­ing the com­pet­i­tive play­ing field, in­clud­ing through ne­go­ti­a­tions on and early con­clu­sion of the Chi­naEU In­vest­ment Agree­ment.

We are ad­vanc­ing, as I men­tioned be­fore, eco­nomic re­forms and re­struc­tur­ing, in­clud­ing fi­nan­cial sec­tor open­ing, that would cre­ate a more rapidly grow­ing Chi­nese mar­ket for EU goods and ser­vices by mov­ing China to­ward more home-grown, con­sump­tion-led growth.

And we are strength­en­ing co­op­er­a­tion on a range of in­ter­na­tional eco­nomic and fi­nan­cial is­sues, so that we are bet­ter able to work to­gether on com­mon global chal­lenges.

Last but not least, global ex­cess steel ca­pac­ity calls for global ac­tion.

All the coun­tries con­cerned should step up di­a­logue and ex­changes to seek to re­solve their con­cerns through closer co­op­er­a­tion rather than re­sort­ing to trade de­fense mea­sures, which are not sound reme­dies. China stands ready to en­gage in di­a­logue and con­sul­ta­tion with the EU through plat­forms in­clud­ing the Chi­naEU Steel Di­a­logue to re­solve their dif­fer­ences and prop­erly man­age trade fric­tion.

In this con­nec­tion, I wish to men­tion a con­ver­sa­tion I had some weeks ago with a Euro­pean busi­ness leader who works with the steel in­dus­try.

Con­trary tomy ex­pec­ta­tion, he didn’t pick a fight with me. Rather, he was very friendly, frank and open-minded. Of the many in­ter­est­ing points he shared with me, three are es­pe­cially im­pres­sive.

One, China rep­re­sents more of an op­por­tu­nity than a chal­lenge. For many years Western pol­i­cy­mak­ers and schol­ars, as well as me­dia pun­dits and com­men­ta­tors, in­clud­ing those in the EU, have en­gaged in heated de­bates on whether the rise of China rep­re­sents a threat or an op­por­tu­nity for the cur­rent in­ter­na­tional or­der. In re­cent times, talk of it be­ing a threat has re­gained mo­men­tum.

For the EU, China is both a chal­lenge and an op­por­tu­nity. But in the fi­nal anal­y­sis, China rep­re­sents more of an op­por­tu­nity than a chal­lenge. Putting it in per­spec­tive, China’s mov­ing from a ma­jor ex­porter of low-value added man­u­fac­tured goods to­ward higher-end pro­duc­tion and do­mes­tic con­sump­tion au­gurs well for the EU.

And it is very im­por­tant the EU keep in mind there is only one China in the world, it should not miss the op­por­tu­ni­ties that a trans­form­ing China of­fers.

Two, the EU and China can and should work with each other and not against each other.

The EUand China are nei­ther strate­gic com­peti­tors nor ri­vals. With long-stand­ing civ­i­liza­tions be­hind them, both Europe and China set great store by eco­nomic de­vel­op­ment as well as so­cial equity and jus­tice. In ar­eas where the EU and China di­verge, both have the wis­dom and ca­pa­bil­ity to ac­com­mo­date and work things out in a mu­tu­ally ben­e­fi­cial man­ner. The suc­cess­ful set­tle­ment of the so­lar panel dis­pute was a case in point.

Three, it is im­per­a­tive that the EU hold on to its val­ues of open­ness and in­clu­sive­ness. While the con­cerns and wor­ries of the steel sec­tor can be well ap­pre­ci­ated, it is nec­es­sary to re­mind our­selves that to keep the EU’s so­cial model and give con­crete hope to EU cit­i­zens, es­pe­cially the younger gen­er­a­tion, EU coun­tries must re­form and change. The same is true for the steel in­dus­try. Even if China was not com­pet­ing in the steel mar­ket, there are other com­peti­tors with a com­pet­i­tive edge.

Al­though voices say­ing this are rarely heard in the me­dia, they are worth lis­ten­ing to and heed­ing when they are.

Be­fore I con­clude, I wish to re­it­er­ate one more point. Whether or not it rec­og­nizes China’s mar­ket econ­omy sta­tus, the EU and all other mem­bers of theWTO are un­der the obli­ga­tion to ap­ply the rules of theWTO, namely Sec­tion 15 of the Pro­to­col on the Ac­ces­sion of China to theWTO, which sets out­Mem­bers should stop us­ing the “ana­logue coun­trymethod” in an­tidump­ing in­ves­ti­ga­tions against China as of De­cem­ber 11, 2016.

It should be clar­i­fied, this is not a bi­lat­eral ne­go­ti­a­tion be­tween China and the EU. This is not about whether or not China is up to the mar­ket econ­omy cri­te­ria of the EU. This is sim­ply ir­rel­e­vant. The real is­sue is about the EU’s stand­ing by its val­ues of and com­mit­ment to fair trade, mul­ti­lat­er­al­ism, and rules-based in­ter­na­tional or­der.

We look for­ward to the EU’s clear-cut com­pli­ance with it­sWTO obli­ga­tions and ap­ply equal terms to China in its cal­cu­la­tions of anti-dump­ing du­ties.

The au­thor isHead of the Chi­nese Mis­sion to the EU.

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