China is considering increasing its imports of low value added steel from other countries - an unnamed high ranking commerce department official stated last week. The purpose of encouraging imports of low value added steel would be to decrease the output of crude steel and boost foreign exchange expenditure.
The low value added steel products in question are semi finished steel and HR steel. Currently, China imposes a 1-3 percent import tariff on semi finished steel and a 3-10 percent import tariff on finished steel, including HR. These tariff rates are the Most-Favored-Nation tariff rates, while the normal import tariff rates are much higher. One direct measure the Chinese authorities could implement is a reduction of the import tariff rate, even possibly introducing a zero rate.
Due to serious environmental pollution and rapid natural resources consumption, the Chinese government is seeking to stem the increase in national steel output. In addition, the encouragement of imports by the government would help balance China's huge international trade surplus and thus alleviate the pressure of inflation. In July, China's CPI (Customer Price Index) increased by 5.6 percent compared to the figure for the same period last year, constituting a record high for the past 10 years.
Meanwhile, China's steel exports are continuing to boom. However, the export increase trend slowed down after the successive implementations of the export tariff and export license system in 2007. In July, China's steel exports totaled 5.94 million tons, up by 66 percent year on year. However, the figure dropped by 6.6 percent compared to June and was the lowest of the previous four months.
The steel export increase in June can be partly explained by the foreseen further decrease in the export rebate as of July 1. Thus, the export fall in July was not so surprising. In order to allow sufficient time to observe the results of the export policy changes, China's government is not likely to issue new policy adjustments during the next 2-3 months at least.
Furthermore, a powerful voice has recently been added to objections to steel export restrictions: Mr. Jia Yinsong, deputy bureau director at the National Development & Reform Commission (NDRC) has declared that China's current over-restriction of steel exports will probably increase the competitiveness of China's overseas rivals. He added that, once these rivals had caught up with China, the country's comparative advantages in the global market would be lost. This is the first time for a high ranking Chinese official to publicly come out in support of steel exports in recent years - an indication that there is an active debate within the Chinese government regarding the current steel export policy.