Japan’s Abe Says China Isn’t Doing Enough to Fix Steel Glut

G-7 Leaders to Coordinate Economic Responses
  • G-7 leaders vow to tackle steel glut and industrial excess
  • China in bind over cutting inefficient mills, says OECD chief

Japan’s Prime Minister Shinzo Abe said China isn’t doing enough to tackle oversupply in its steel industry, after Group of Seven leaders pledged to fix excess industrial capacity and a global glut of the metal caused by government subsidies and support.

“The Chinese government has said it will cut back on excess capacity,” Abe said at a press briefing Friday following the G-7 meeting at Ise-Shima in central Japan. “But our government believes that the size of the reduction is insufficient, considering the state of international markets. While we have the fundamental problem of government support that distorts markets, we will be concerned that the reduction will not be put into practice.”

China, the world’s top steel supplier, is contending with its weakest growth in decades and is exporting its surplus at record rates. The slowdown has created about 400 million metric tons a year of excess capacity, according to Japanese steelmakers who compete with China on export markets. That’s equivalent to four times the size of steel output in Japan, the world’s No. 2 producer. The European Union, India and the U.S. have all taken steps to protect their domestic industries against the deluge.

“Oversupply has led to an international fall in prices, worsening of corporate profits and uncertainty in employment, and a substantial effect on the world economy,” said Abe.

’Negative Impact’

Even as China seeks to pivot from capital-intensive to consumer-led growth, it’s in a bind on how to effectively make that transition. “Inefficient mills also employ people and it may be an important industry in rural areas, so it won’t be easy for China to stop such mills,” said Risaburo Nezu, chairman of the Steel Committee at the Organization for Economic Cooperation & Development.

“It will be a tough decision for China, but unless the country stops facilities at some point, it won’t be good for them to keep production while funding subsidies,” he said in an interview in Tokyo on Thursday. Most of China’s steel production comes from state-owned companies.

“We recognize the negative impact of global excess capacity across industrial sectors, especially steel, on our economies, trade and workers,” according to an earlier G-7 communique that didn’t name China. “In particular, we are concerned about subsidies and other support by governments and government-supported institutions that distort the market and contribute to global excess capacity.”

Latest Move

The latest move from the U.S. Department of Commerce on Wednesday was to set possible tariffs on steel imports from China and four other countries, with Chinese producers potentially facing anti-dumping duties of 210 percent, although the level was scaled back from an earlier ruling.

China’s commerce ministry called for restraint and prudence in the application of trade protection measures in a statement Friday. The day before, Foreign Ministry spokeswoman Hua Chunying responded to European criticisms by noting that only 14 percent of the EU’s imported steel comes from China. The solution to “the malaise of the steel industry of Europe or even the world” is to bolster “sustained and and steady global economic recovery,” she said at a briefing in Beijing.

China’s steps to reduce its steel capacity include a government plan to cut between 100 million and 150 million tons by 2020 as a fading infrastructure boom leaves it saddled with too many unprofitable plants after decades of rapid growth. On Thursday, its top steel-making province, which accounts for around a quarter of national output, said it aims to shutter capacity equivalent to about a month of production, according to the official Xinhua news agency.

The G-7 said it intends to utilize venues such as the OECD to consult with major steel producing countries to end the glut, according to its statement, which comes six weeks after industrialized nations failed to agree with China on steps to tackle the problem at a meeting in Brussels held by the OECD.

Participants had sought agreement to eliminate state subsidies and share information among nations to be transparent on output cuts, the OECD’s Nezu said.

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