Global Steel Trade; Structural Problems and Future Solutions

• Be subject to strong subsidy disciplines under the WTO Agreement on Subsidies and Countervailing
Measures, including elimination of export subsidies and import substitution subsidies.
• Remain subject to a special, nonmarket economy methodology for counteracting dumping for at least
fifteen years.
• Be subject to a special, China-specific safeguard mechanism to block import surges for twelve years.
Furthermore, exposure to international competition could drive a rationalization of the Chinese steel
industry. Already the government’s investment strategy seems to recognize that the Chinese steel industry
must go through a period of serious consolidation to prepare it for the competition that will be unleashed by
its WTO membership.
China’s Export Potential
China today is the world’s largest producer of crude steel, with annual output just over 120 million metric
tons (MT) in 1999. 3 China achieved the top spot in 1996, after having more than doubled its annual output
in just ten years (Chart 6-1).
China’s 1999 crude steel
output places it ahead of the
140
United States (97 million MT)
and Japan (94 million MT), the 120
world’s second and third
100
largest crude steel producers,
respectively. 4
In spite of its tremendous
overall capacity, current
structural and performance
problems and growing
domestic steel demand
(sufficient to make China a net
importer of steel) suggest that
China’s export potential is
limited in the short term, and
uncertain in the medium to
long term.
Metric Tons (millions)
80
60
40
20
0
1986 1988 1990 1992 1994 1996 1998
Source: International Iron and Steel Institute.
6-1. Crude Steel Output, China
Old Equipment and Outmoded Production Techniques
China’s steel industry comprises a small number of large and medium-sized firms and thousands of smallscale
operations. 5 The largest producers are all state-owned enterprises (see box next page). 6 Whether in the
steel or any other sector, state-owned enterprises in China generally suffer from many of the same
problems—problems the Chinese government is trying to address. Corporate governance remains weak;
budget constraints are not sufficiently hard; large state-owned enterprises carry significant social welfare
burdens; financial and cost accounting standards remain lax; and decentralization has resulted in local and
central government policies that often conflict. These issues are at the root of many of the structural and
performance problems besetting the steel industry (see second box next page). 7
Fragmentation. In 1998, fifty steel firms in China produced more than 500,000 MT of crude steel; thirty-four
firms produced more than 1 million MT; and four firms produced more than 5 million MT. None produced more
than 10 million MT. The four largest firms account for more than 30 percent of total annual steel output, and the
top sixty-seven steel producers now account for close to 90 percent of China’s annual crude steel output. 8
Chapter 6: New Players in the Global Market—China 141