Market economy status not a bilateral negotiation
THE protectionist sentiment and the confrontational approach that have emerged in theEuropean Union are worrying, as well as being regrettable and misleading. On Friday, the European Commission opened new anti-dumping investigations on steelproducts originating from China, and the European steel industry organized a demonstrationagainst so-called Chinese dumping in the EU market and the granting of Market EconomyStatus to China.
Nobody should be under any illusion: overcapacity, including excess capacity in the globalsteel sector is one of the many challenges we are all faced with. Not only the European steelindustry has been hard hit, iron and steel industries in China and many other emergingeconomies are suffering badly from excessive production and flagging demand.
According to some estimates, cutting back the overcapacity in China by 30 percent in thoseindustries with most excess capacity?iron and steel, coal, cement, shipbuilding, aluminumand 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 millionpeople out of poverty, advancing industrialization to transform China into a post-industrialsociety, rebalancing the economy from investment and net exports to consumption andinnovation. The situation is serious and requires a response. But what kind of response? Grumble, curse, cut the ground from under other's feet? Retreatinto protec- tionism and be at each other's throats?
If history serves as a guide, these are unwelcome if not irresponsible responses. They mayhelp to give vent to the anger and frustration of some and obtain short-term gains, but they failto serve the common longterm interests of all. Obviously the response to the challenges is up to each and every country. I only wish toshare what we believe to be the best possible approach and option, and what China has beendoing 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 tocontrol new capacity. Painful as it is, China has cut its steel industry capacity by more than 90million tons over the past few years and its investment in iron and steel assets by 13 percentlast 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 madeelimination of overcapacity the top priority for this year and will cut the steel industry capacityby another 100 to 150 million tons. Second, take the tackling of overcapacity as an opportunity to accelerate economicrestructuring. The Chinese word for "crises" is made up of two characters, crisis and opportunity. Guided byour conventional wisdom that opportunities are embedded in crises and that we must be goodat getting to grips with them, China is pushing through essential reforms and restructuringagainst all the odds.
Being fully aware that much of China's industrial overcapacity is heavily concentrated at thelower end of the value curve, we have taken restructuring of the iron and steel sector as animportant part of our endeavor to complete the difficult transition of moving China away froman investment-led economy to a consumer-oriented one. China is actively restructuring the steel sector by eliminating outmoded capacity, creating exitstrategies for "zombie companies" based on market rules, and encouraging promotion ofinnovation, technology, quality and management to meet production safety, energyconsumption and environmental protection standards, and ensure the effective supply of highquality products.
In addition, we have put in place stricter supervision over local authorities to guard againstexcess production and tendency to protect enterprises with favorable policies. Third, support the training and relocation of workers for new jobs to minimize the negativeimpacts of transformation. Like elsewhere in the world, the pressure of globalization and reform and restructuring hashad impacts on Chinese society. Restructuring of the iron and steel sector has given rise toconcerns and worries. Yet, there is a common understanding that change for the betterinvolves a price and pain. This time around, the Chinese government has taken measures to help redundant laborchange career paths. Among other things, the central government is setting up a special fundto retrain workers and support local government efforts to reduce overcapacity.