Chinese Steel Industry: How Did the World’s Largest Steel Producer Protect Itself from Global Slowdown and a Trade War?

The US-China trade war and rising environmental concerns have led to a slowdown in global infrastructural projects in 2018. The objective of this short piece is to understand the impact of these global phenomena on the Chinese steel industry.

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Vidushi R Singh, Research Intern, Institute of Chinese Studies

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How Did the World’s Largest Steel Producer Protect Itself from Global Slowdown and a Trade War?

China has been the world leader in steel production since 2008, with about half of the total world steel exports originating in China. The US-China trade war and rising environmental concerns have led to a slowdown in global infrastructural projects in 2018. The objective of this short piece is to understand the impact of these global phenomena on the Chinese steel industry.

Economic logic follows that excess supply and reduced demand, as have been observed in recent times, would lead to falling prices. The inelasticity of supply should have meant low prices for the Chinese steel market. As can be observed in the following graph, prices dipped following the first steel tariff announcement from the United States Trade Representative’s (USTR) office on 1 March 2018. However, while prices did fall, they also rebounded much sooner than initially predicted. This trend can also be observed in the graph, with prices rising back up April 2018 onwards. However, the prices crashed again in November 2018, due to falling demand in downstream sectors, such as infrastructure and manufacturing industries, as a speculative response to rising tariffs between the US and China. Chinese steel manufacturers also registered losses for the first time in the last three years, in November 2018. Despite this, the Chinese steel economy remained largely immune to economic shocks.

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Source: Trading Economics

The Chinese conduit to coming out unscathed lies in the supply side reforms, initiated by the government in 2015. The end of the Chinese construction boom in 2014 had instigated the government to carry out reforms to cut down on steel production. As the growth rate of the construction industry fell from 10% in 2014 to just 2% in 2015, steel production was reigned in, with the growth rate actually falling to a negative value in 2015 (National Bureau of Statistics of China). The government decided to intervene at this point so as to ensure the survival of the steel industry and avoid mass layoffs that would have resulted from a slowdown in the industry. The goal decided in 2015 was to reduce capacity by 45 million tonnes, a target that was attained by the latter half of 2017, much before the set deadline of 2020.

Thus, when the demand growth rate fell, the Chinese steel industry had already moved on to capacity optimization and did not face grave overutilization. This allowed for the industry to shift supply rapidly, and safeguard itself from future tariffs as well. This success of the Chinese steel industry is evident in the fact that since 1 January 2019, Chinese steel prices have increased consistently. The shift from high-grade iron ore to lower grades has also allowed manufacturers to increase margins by cutting costs.

One interesting factor in this situation is the ability of the Chinese steel manufacturers to divert inventory to Chinese infrastructural projects under the ‘Made in China 2025’ initiative and the Belt and Road initiative. While it is hard to ascertain the exact amount of steel inventory being fed into these initiatives, they do provide the steel industry with a reliable sink to use up inventory, while cutting down on any overutilization, thus stabilizing prices in the short run. The government’s plans to expand on infrastructure development in the coming years also provides support to investor speculations and have played a role in stabilizing the Chinese steel economy.

The 25 per cent tariffs imposed on steel imports by President Trump, thus, fall short of having a real impact on the Chinese steel industry, in part due to China’s relatively unimportant position in US steel imports (China is the 25th largest exporter of steel to the USA), and in part because of the foresight of the Chinese government.

So while the Chinese steel industry did face multiple shocks over the course of the 2018 trade war and global infrastructural slowdown, the government’s preemptive measures of securing a strategic sector allowed it to come out of the tussle relatively unharmed. While the opacity of government and industrial operations make it tough to analyze the situation in greater depth, one can say that the Chinese steel industry has been able to cope with the changing world geopolitical scenario with ease.

Wang Huning: China’s Amit Shah

Jabin T. Jacob, PhD, Fellow, Institute of Chinese Studies

If Shah’s job is to help Modi do the electoral math and draw up strategies to win elections, it is Wang’s job to help create the narrative that legitimizes Xi Jinping in power in an authoritarian system.

As the National People’s Congress in China cleared a constitutional amendment on Sunday allowing President Xi Jinping to remain president for life, here is a look at Xi’s closest confidante and politburo member Wang Huning, who is also known to be the brain behind President Xi.

Wang has been speechwriter and ideologue to three successive General Secretaries of the CPC –- Jiang Zemin, Hu Jintao and now Xi. Many key concepts for these three leaders have been fashioned and refined under Wang’s watch in the Party’s Central Policy Research Office since 2002 and later as a member of the Central Secretariat.

Indeed, one might wonder if China’s – and President Xi Jinping’s — slow turn towards a more assertive stance has not been influenced also by Wang’s personal ideological proclivities conveyed through the mouths of China’s leaders.

In practical terms, Wang Huning is to Xi Jinping what Amit Shah is to Narendra Modi. If Shah’s job is to help Modi do the electoral math and draw up strategies to win elections, it is Wang’s job to help create the narrative that legitimises Xi Jinping in power in an authoritarian system Continue reading “Wang Huning: China’s Amit Shah”

Term Limits Off for Xi: Some Reflections for India

Jabin T. Jacob, PhD, Fellow, Institute of Chinese Studies

When China’s National People’s Congress – the rough equivalent of India’s Lok Sabha, but toothless – meets in the coming week it has to deal with a proposal by the ruling Communist Party of China to amend the state constitution to remove term limits for the President of the state. Coming from where it does, this is pretty much a direct order to the NPC to remove the term limits.

Removing term limits for the President, imposed in 1982, is a roundabout way of saying that the norm of two terms for the CPC General Secretary – Xi’s more powerful avatar – too, is not set in stone. Continue reading “Term Limits Off for Xi: Some Reflections for India”

Xi Jinping Has Feet of Clay

Jabin T. Jacob, PhD, Fellow, Institute of Chinese Studies

The Central Committee of the Communist Party of China has suggested removing term limits for the President and Vice-President of the People’s Republic of China. The immediate implication is that President Xi Jinping could conceivably continue for a third term or more in office.

However, the more important one is that this sets a precedent for doing away with the norm of a two-term limit developed over the past couple of decades for the CPC General Secretary – the most powerful position Xi holds.

This development then appears to confirm long-standing speculation that Xi was aiming to carry on in power at the next CPC National Congress in 2022.

Other amendments to the PRC constitution being mooted by the CPC also confirm the possibility. One such is the addition of ‘Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era’ in the PRC Constitution. In this case, this is a foregone conclusion since Xi Jinping Thought was already included in the CPC constitution at the 19th Party National Congress last October.

To understand what exactly has happened and how, Indians need only remember how their own bureaucrats bend the rules or create new ones at will, if necessary – to push their own aggrandizement while in office or to comfortable post-retirement sinecures.

Like the Indian babu – and CPC cadre are essentially bureaucrat-politicians – Xi and the CPC justify these moves in the name of ‘efficiency’, ‘expertise’, ‘capability’, even ‘merit’ and ‘respect for the Constitution’.

Note, for instance, that the state-run Xinhua News Agency had quoted Xi – only a few hours before news of the proposed changes to the PRC Constitution was announced – as saying that ‘No organization or individual has the power to overstep the Constitution or the law’.

Driving home this point even more sharply is a Global Times editorial that declares brazenly, ‘We are living in a changing and sophisticated era where individuals have limited horizon and capability’. Somehow the point about one individual being empowered at the expense of 1.3 billion others has been missed.

In fact, there is a clear provision in one of the proposed amendments that the director of the national supervisory commission – a new state organ that is coming into being in the PRC – shall serve no more than two consecutive terms. Why are there term limits for one state official and not the Chinese President and Vice-President?

This blindness to irony or hypocrisy and fundamentally paternalist and non-democratic attitude is unsurprising in societies and polities, which are essentially feudal in nature and/or are used to strong-man/centralised rule such as China or India.

Weakness not Strength

Where once, the CPC thought it could learn from the outside world and control the consequences at the same time or at least that the consequences would not threaten fundamentally threaten its own existence, today the measures undertaken by Xi suggest that such confidence no longer exists.

From the heavy-handed anti-corruption campaign to the ever increasing number of directives and instructions to universities, the media and Party cadre about ideological red lines and the constant drumbeat of state-driven propaganda and adulation of Xi to the extreme surveillance measures used against its own citizens, the Party looks less like the ruling party that it is and more like it is trying to stave off some imminent crisis.

Despite the restrictions on their freedom of expression meanwhile, Chinese citizens have found ways and means to work around censorship using technology as well as their own sarcasm and wit and the extraordinary malleability of the Chinese language itself to make their point.

For instance one image that has gone viral on Chinese social media is of Winnie the Pooh hugging a huge pot of honey and saying in Chinese, ‘Find the thing you love and stick with it’. References to Winnie the Pooh were banned on Chinese social media in the run-up to the 19th Party Congress because it was used to refer to Xi obliquely and the implication of the latest image too is clear.

The very fact that the CPC under Xi finds it necessary to declare the infallibility of the Party and to enshrine it in the PRC constitution – another proposed amendment is the inclusion of the statement ‘the leadership of the Communist Party of China is the defining feature of socialism with Chinese characteristics’ – suggests a lack of confidence within the Party about both its role and capability in holding both itself and the country together.

This is not to say that China is falling apart as many Indian strategic analysts appear to hope for but that China’s internal political dynamics deserve greater attention in India for more objective assessments of China’s foreign policy goals and intentions.

The proposed amendments to the PRC constitution and the apparent centralization of power in Xi’s hands point to a fundamental weakness of institutions in China. No rising power can afford to hollow out its own institutions and hand over power to one single individual howsoever brilliant or capable.

The more China sees a centralization of power in an individual or even a coterie of individuals, the less likely it will have the required flexibility to deal with either its internal problems or its external challenges.This, by the way, is as true of democracies as it is of authoritarian states. Indeed, India’s own experiences since Independence should be instructive.

 

This article was originally published as ‘The “Emperor” Has Feet of Clay: Decoding the Xi Jinping Era’, News18, 27 February 2018.

India Becoming a Threat in Chinese Imagination

Hemant Adlakha, professor of Chinese at Jawaharlal Nehru University, New Delhi and Honorary Fellow, Institute of Chinese Studies (ICS), Delhi.

As the new year gets underway, and Chinese foreign policy analysts join their counterparts around the world in assessing the events of 2017, the emerging international relations (IR) discourse in Beijing is quite a revelation — at least to the Japanese and Indian strategic affairs community.

While most Chinese believe Japan to be the second biggest threat to China’s “peaceful rise,” according to a few Chinese experts, the rising global profile of India, especially under the “right-wing” nationalist Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP), has gone unacknowledged. Continue reading “India Becoming a Threat in Chinese Imagination”

Fluffy Ambassadors: China’s Panda Diplomacy

Preethi Amaresh, Research Officer, Chennai Centre for China Studies (C3S)

The giant panda has proven itself to be an instrument of foreign affairs and its use as a soft power tool has played a part in International relations. Pandas are considered to be a symbol of peace for China. China’s policy of sending pandas as diplomatic gifts was revitalized in 1941 when Beijing sent two pandas to the Bronx Zoo as a “thank you” gift on the eve of the United States entering World War II. This stimulated the relationship between countries, which in turn increased China’s soft power in the panda-receiving country. Mao Zedong, the founding father of the People’s Republic of China, often engaged in panda diplomacy in the 1950s, sending the bears as gifts to North Korea and the Soviet Union.

According to one theory, the movement of pandas from China to another country means that the other country accepts the extension of “China” on its territory. It all began in 1941 where Soong Mei-Ling (First lady of the People’s Republic of China) sent the first batch of pandas as gifts to the U.S. In 1949, after the foundation of the People’s Republic of China, more giant pandas were shipped abroad. One well-known example is when the Chinese government presented two pandas to U.S President Richard Nixon during his visit to China in 1982, which turned out to be an enormous diplomatic success with respect to China’s establishment of relations with the U.S. Continue reading “Fluffy Ambassadors: China’s Panda Diplomacy”

Book Review: Xi Jinping’s China

Jabin T. Jacob, PhD, Fellow, Institute of Chinese Studies

Jayadev Ranade. 2018. Xi Jinping’s China (New Delhi: Knowledge World Publishers). pp. xi+394. Rs. 1,400. ISBN: 978-93-86288-90-5

This work is a collection of pieces written by the author in various online platforms and as part of other edited volumes. The reader does not have the benefit of an introduction that ties in all the chapters together but the fact that the book releases right after the conclusion of 19th Congress of the Communist Party of China (CPC) in Beijing in October certainly helps provide context.

All the big issues are covered here – from Xi Jinping’s rise to power as General Secretary of the CPC and his consolidation of power over the past five years, the murky details of the fall of Xi’s rival Bo Xilai, and China’s military reforms and reorganization. Alongside, a host of relatively arcane issues such as China’s annual sessions of its equivalent of a national parliament and Xi’s new rules for propaganda, media control – thought control, no less (the infamous Document No. 9) – are also examined. Continue reading “Book Review: Xi Jinping’s China”