Mar­ket econ­omy sta­tus not a bi­lat­eral ne­go­ti­a­tion

The Pak Banker - - OPINION - Yang Yanyi

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 new anti-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 of Mar­ket 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 pro­tec- tion­ism 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 longterm 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 new ca­pac­ity. 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 new jobs 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.

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