China Continues to Prop Up Its Ailing Factories

[Porker]

China is doubling down on efforts to keep unprofitable factories afloat despite for years pledging to curb excess capacity, adding to a glut of basic materials flooding the global economy.

The country’s overproduction of steel, aluminum, diesel and other industrial goods has driven down prices and crippled competitors, leading to thousands of lost jobs in the U.S. and elsewhere.

China’s continuing aid for unneeded factories is triggering a sharp rise in trade disputes and protectionist sentiment, especially in the U.S., where trade has emerged as one of the pivotal issues in the U.S. presidential election.

According to a Wall Street Journal analysis of Chinese public companies, Chinese government support includes billions of dollars in cash assistance, subsidized electricity and other benefits to companies. Recipients include steelmakers, coal miners, solar-panel manufacturers, and other producers of other goods including copper and chemicals.

One beneficiary,Aluminum Corp. of China, or Chalco, said in October one of its units would shut down a roughly 500,000-ton-per-year smelter in the far-western Gansu region as it struggled to make profits. Executives prepped for thousands of layoffs.

Then Gansu officials slashed the plant’s electricity bill by 30%, employees say, and the factory was saved. Although a portion of capacity was taken offline, most is operational.

“We’re in full production now with 380,000 tons of capacity,” said Fei Zhongchang, a company sales manager. Chalco’s press office and local government officials didn’t respond to requests for further comment.

In Europe, workers have joined protests against Chinese steel imports. Australia has investigated dumping of products including solar panels and steel and India has raised import taxes on steel after a surge of cheap Chinese goods.

The U.S. launched seven new investigations into alleged dumping or government subsidies involving Chinese goods in the first three months of this year, more than the same period of any other year dating back to at least 2003, government data show.

Earlier this year, the U.S. Commerce Department slapped preliminary import duties of 266% on imported Chinese cold-rolled steel. The decision came after U.S. Steel Corp. lost $1.5 billion last year, closed its last blast furnace in the South and laid off thousands of workers, blaming China.

Late last month , U.S. Steel filed a trade complaint against China at the International Trade Commission, alleging price fixing, trans-shipment via third countries to avoid duties and cyber-espionage to loot technology off U.S. Steel computers. China’s Commerce Ministry has urged U.S. authorities to reject the complaint, and said allegations of intellectual property infringement “are completely without factual basis.”

China says it isn’t guilty of dumping—or selling a product at a loss in order to gain market share—and calls U.S. and EU measures and investigations forms of protectionism. It says it has mothballed factories and intends to cut more, with plans to lay off up to 1.8 million steel and coal workers.

Officials say it is natural for complaints against China to increase as the country takes on a large share of global trade.

“As the largest trader in goods, it’s quite understandable for us to have so many” complaints, China’s Commerce Minister Gao Hucheng said recently. “We need to take it as it comes and live with it.”

One way of tracking China’s support is by looking at subsidies reported in corporate filings on the country’s two main stock exchanges in Shanghai and Shenzhen.

According to a Journal analysis of nearly 3,000 domestic-listed Chinese companies in 2015, reported government aid rose to more than 119 billion yuan, or more than $18 billion, last year compared with about 92 billion yuan in 2014.

Reported subsidies have risen roughly 50% since 2013, based on figures from Shanghai data provider Wind Information Co. Under Chinese accounting standards, such aid can be cash or other perks like subsidized power or land, but doesn’t include some other support, such as capital injections from the government as an equity shareholder.

Recipients include an ethanol producer that said it was promised as much as 40 million yuan ($6.1 million) in subsidies in the first three months this year because of “grave operating circumstances.”

A producer of titanium dioxide—which is used in products such as paint and sunscreen—won about 28 million yuan ($4.3 million) in cash assistance as it seeks to expand in the North America and elsewhere.

Another company, Yunnan Aluminium Co., obtained nearly 500 million yuan ($77 million) in subsidies since late 2015, securities filings show. In the first half of 2015, the company says its production of alumina—the starting material for smelting aluminum metal—jumped 40%, even as revenue sank amid weakening prices.

Company representatives didn’t respond to requests for comment. An official at the provincial Department of Finance, which administered much of the cash aid, said it acted to protect Yunnan Aluminium’s 10,000 jobs.

“The government’s aim is to help maintain social stability,” the official said.

Other countries, including the U.S., offer substantial support for struggling industries.

Experts cite differences in China, which they say is less open about its use of subsidies and more inclined to use them to promote exports. China has repeatedly said it would shutter unneeded factories, without following through.

The need for capacity cuts in China has long been apparent. More than 40% of its major steel companies were losing money in the first half of 2015, according to the China Iron and Steel Association.

China’s Ministry of Industry and Information Technology, which oversees the steel industry, told the Journal in 2014 that authorities were already “in the process of implementing” capacity reductions.

Since then, Chinese crude steel production has fallen 2% year-on-year in 2015 to about 804 million metric tons. But industry experts in China, the U.S. and Europe say a further 200 million metric tons of capacity—or about 25% of China’s production—needs to be cut to restore market balance. China’s steel exports jumped around 20% last year to 112 million metric tons, according to customs data.

A 63-page “investigation initiation checklist,” filed last year by U.S. Steel Corp., Nucor Corp. and the United Steelworkers union to demand import tariffs on rolled steel, found 44 separate subsidy programs, including seven that give Chinese steelmakers cheap or free land, iron ore, coal, and power; eight that offer discount loans; 15 tax breaks; and 11 programs that give companies money directly.

Some of the programs date back years, but others were active in the past 12 months, including subsidized export loans, the document showed.

“It’s the whole range of practices that keep these zombie companies alive,” said Roger Schagrin, a lawyer for U.S. steelmakers.

At the time, a spokesman for China’s Commerce Ministry said restrictions on Chinese steel would not solve the global overcapacity problem, and encouraged Chinese steel companies to defend their rights.

Other Chinese products rattling markets include diesel fuel, with Chinese exports rising nearly 80% in 2015 over 2014, according to customs data. China has loosened restrictions to let private refiners export fuel for the first time, given weak domestic demand.

While U.S. energy companies shed staff, China’s by and large haven’t. Refining giant China Petroleum & Chemical Corp., whose net profit fell by 30% in 2015, told the Journal no employees have been laid off since late 2014 when oil prices began to fall, and that it had “no plan for any future layoffs.” The company, also known as Sinopec, employs about 351,000 people.

China’s aluminum production, meanwhile, rose to 32 million tons in 2015, double the level in 2005. Exports soared to 6.7 million tons from 2.6 million during the same period, helping push global prices down 40% in the past five years. The number of smelters in the U.S. has fallen to four from 23 in 2000, destroying thousands of jobs.

Tensions over lost jobs reflect wider frustrations that China hasn’t lived up to all the promises it made when it joined the World Trade Organization in 2001.

According to data collected by the WTO, China accounted for around 25% of all anti-dumping measures reported between 1995 and 2014, more than any other nation. The U.S. was the target in about 5% of measures, the data show.

 

[Jamesc]

 

China is doubling down on efforts to keep unprofitable factories afloat despite for years pledging to curb excess capacity, adding to a glut of basic materials flooding the global economy.

The country’s overproduction of steel, aluminum, diesel and other industrial goods has driven down prices and crippled competitors, leading to thousands of lost jobs in the U.S. and elsewhere.

China’s continuing aid for unneeded factories is triggering a sharp rise in trade disputes and protectionist sentiment, especially in the U.S., where trade has emerged as one of the pivotal issues in the U.S. presidential election.

 

 

 

 

Cheaper cars?

 

[Mercury1]

Govt tiao COE price up to make up

 

Cheaper cars?

 

 

[Tigershark1976]

Cant help to feel that those American really talk cock... if China is overproduction of steel, aluminum, diesel and other industrial goods and China Goverment is subsidising these stuff, it will help to cut down the cost of many other Americans companies. In fact, whole world is benefiting from it. If Americans companies are not as competative, they should diversified rather than complaining- eg use those cheap industrial material subsidised by China Government, value add and make something more expensive then sell back to China! For  example, turning low cost steel to high value stainless steel! Isnt this what most Developed countries is doing? Isnt that what we study in Ang Moh Economics? What cock these Americans are talking?? A Developed country trying to compete in a low tech industry with a developing country??? How smart American can be...     

Edited May 9, 2016 by Tigershark1976

[Angcheek]

they been fighting over steel for a long long time .. still fighting . 

 

but isnt this part of US co own doing .... 

[Kusje]

Cant help to feel that those American really talk cock... if China is overproduction of steel, aluminum, diesel and other industrial goods and China Goverment is subsidising these stuff, it will help to cut down the cost of many other Americans companies. In fact, whole world is benefiting from it. If Americans companies are not as competative, they should diversified rather than complaining- eg use those cheap industrial material subsidised by China Government, value add and make something more expensive then sell back to China! For example, turning low cost steel to high value stainless steel! Isnt this what most Developed countries is doing? Isnt that what we study in Ang Moh Economics? What cock these Americans are talking?? A Developed country trying to compete in a low tech industry with a developing country??? How smart American can be...

National security la. How to go to war with China if your steel mills are in China?

[Luckcent]

How to go to war, when they still owe billions of $$$$$ in Bonds.

[Kusje]

How to go to war, when they still owe billions of $$$$$ in Bonds.

 

Dun pay lor.

[Beregond]

How to go to war, when they still owe billions of $$$$$ in Bonds.

quite funny hor  if u think.

china keep buying up US bond, but US keep wanna tio with china, from trade to sea route etc etc ,

but still china are carrying on spending money on the bonds,

 

dun know wat is the strategy and plot behind all these stuff.

[Wyfitms]

Cheaper cars?

 

 

Sure, cars will be cheaper, but in Singapore, Coe just goes up some more 

 

remember - car lite!

[Wyfitms]

How to go to war, when they still owe billions of $$$$$ in Bonds.

 

if i owe billions, i would go to war with my creditors

 

if crush them, i can write off the debt 

quite funny hor  if u think.

china keep buying up US bond, but US keep wanna tio with china, from trade to sea route etc etc ,

but still china are carrying on spending money on the bonds,

 

dun know wat is the strategy and plot behind all these stuff.

 

u mean u don't know they are actually lovers??

 

porker don't get too excited hor

 

[Angcheek]

guess who was on the train .... kekeke

[Porker]

guess who was on the train .... kekeke

 

ONE PUNCHHHHHHHHH!!!!!!!!!!!!!!!!!!!!!!!!!!

 

Is that even real?

[Angcheek]

ONE PUNCHHHHHHHHH!!!!!!!!!!!!!!!!!!!!!!!!!!

 

Is that even real?

 

doesnt matter ma ... world peace real meh ? 

[Tigershark1976]

National security la. How to go to war with China if your steel mills are in China?

 

Bro, Whats the different? China produced closed to 1600MT where US produced less than 80MT of steel in 2015. what can that little 80MT do??

 

If it is National Security issue, what Americans should do is to absorb and keep steel as reserve like what they did for oil while the price is low during peace period like now. These reserve can be use during war, whats the different?

[Tigershark1976]

quite funny hor  if u think.

china keep buying up US bond, but US keep wanna tio with china, from trade to sea route etc etc ,

but still china are carrying on spending money on the bonds,

 

dun know wat is the strategy and plot behind all these stuff.

 

This 1 no choice, Like their president said before, US Dollar belongs to America, but its not their problem.

 

When you owe someone a few thousand dollars, that fellow will not hesitate to sue you until you bankrupt. But if you owe him a few billion, rest assure that he will even donate his kidney to you to make sure that you are alive to pay the debts... :D

[Kusje]

Bro, Whats the different? China produced closed to 1600MT where US produced less than 80MT of steel in 2015. what can that little 80MT do??

 

If it is National Security issue, what Americans should do is to absorb and keep steel as reserve like what they did for oil while the price is low during peace period like now. These reserve can be use during war, whats the different?

Um. USA production of steel is a million times more than what you wrote leh.... of course, China is also a million times more.

 

As for what 80 mil metric tons of steel can do, well us production of steel in 1943 was approx 80 mil metric tons as well....

 

Your example of the spr is also not relevant in the current context because USA has never given up on oil production even if they haven't been self sufficient for a while until very recently.

Edited May 10, 2016 by Kusje

[Tigershark1976]

Um. USA production of steel is a million times more than what you wrote leh.... of course, China is also a million times more.

 

As for what 80 mil metric tons of steel can do, well us production of steel in 1943 was approx 80 mil metric tons as well....

 

Your example of the spr is also not relevant in the current context because USA has never given up on oil production even if they haven't been self sufficient for a while until very recently.

 

bro, its monthly million matrix tons produced by US and China lah. Info from World Steel Organisation. But compare to your source of million times more... :XD:

 

My concept is simple, If you are not efficient  to produce and someone is subsidising your purchase and that someone you are buying from is your enemy and you know you dont need to pay for what you buy. Then buy until his pants drop....

 

But of course, you can still keep your concept of continue to process at higher price because of whatever strategic reason. :secret-laugh:.