Market economy status not a bilateral negotiation
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.