During the ongoing Alacero 58 Congress held in Cancún, Mexico and attended by SteelOrbis, panelists Professor Le Xia, Dr. Lance Noble, and McKinsey consultant Yuanpeg Li sought to shed light upon the present Chinese overcapacity issue and updated Chinese strategic policy plans.
Xia highlighted the benefits of the One Belt One Road initiative and its expected effect in establishing intraregional trading closer to China and minimizing the influx of exports to distant locations. Xia stated, “The implications of the policy direction are a shift toward consumption driven growth and supply side reform.” According to Xia, as part of the net effect, Chinese companies will likely move capacity to Africa and throughout parts of Asia.
According to Xia, the new economic policy guidelines of China include downgrading growth targets, shifting from volume growth to growth with value added principles, decreased unemployment, increased equitable income, decreased debt, and reduced environmental damage.
Researcher Dr. Lance Noble added that a second policy, the Chinese manufacturing 2025 plan, seeks to transition Chinese industries such as new energy vehicles, robotics, and semi-conductors “up the value-added chain.” Regarding foreign investment, Li added that the availability of such funding affords Latin America to benefit from a reindustrialization to increase its present low 2 percent infrastructure investment to a more comparable 5-7 percent. These investments in turn could help individual Latin American countries develop other related industries leading to long-term domestic growth.
Li stated that Chinese capacity peaked in 2015 with 779 million mt of crude steel produced annually and is expected to continue a downward trend with capacity reduction policies that now allow for companies to exit the market through bankruptcy, forced closure, environmental non-compliance and reductions in funding. Li also added that much illegal capacity, which was previously excluded in reported figures, has been removed from China and “the market is showing clear signs due to the capacity reduction including profits in the last two years being greater than the past 10 years together.” According to Li, the net effect from increased global prices in 2017 is a position that Chinese policies also seek to support as margins for Chinese companies increased from 1.1 percent in 2016 to 5.5 percent in 2017. He said, “China’s strategy will restrict the flow of exports of low value-added steel products.”
From his research, Noble noted that despite the adoption of these recent policies “China’s political economy has not fundamentally changed to a market economy” as economic activities continue with government backed investments, continued limitations of market access, and government steered mergers and acquisitions.