By Brian Spegele in Beijing and John W. Miller in Pittsburgh
China is doubling down on efforts to keep unprofitable factories
afloat despite for years pledging to curb excess capacity, adding
to a glut of basic materials flooding the global economy.
The country's overproduction of steel, aluminum, diesel and
other industrial goods has driven down prices and crippled
competitors, leading to thousands of lost jobs in the U.S. and
elsewhere.
China's continuing aid for unneeded factories is triggering a
sharp rise in trade disputes and protectionist sentiment,
especially in the U.S., where trade has emerged as one of the
pivotal issues in the U.S. presidential election.
According to a Wall Street Journal analysis of Chinese public
companies, Chinese government support includes billions of dollars
in cash assistnace, subsidized electricity and other benefits to
companies. Recipients include steelmakers, coal miners, solar-panel
manufacturers, and other producers of other goods including copper
and chemicals.
One beneficiary, Aluminum Corp. of China, or Chalco, said in
October one of its units would shut down a roughly
500,000-ton-per-year smelter in the far-western Gansu region as it
struggled to make profits. Executives prepped for thousands of
layoffs.
Then Gansu officials slashed the plant's electricity bill by
30%, employees say, and the factory was saved. Although a portion
of capacity was taken offline, most is operational.
"We're in full production now with 380,000 tons of capacity,"
said Fei Zhongchang, a company sales manager. Chalco's press office
and local government officials didn't respond to requests for
further comment.
In Europe, workers have joined protests against Chinese steel
imports. Australia has investigated dumping of products including
solar panels and steel and India has raised import taxes on steel
after a surge of cheap Chinese goods.
The U.S. launched seven new investigations into alleged dumping
or government subsidies involving Chinese goods in the first three
months of this year, more than the same period of any other year
dating back to at least 2003, government data show.
Earlier this year, the U.S. Commerce Department slapped
preliminary import duties of 266% on imported Chinese cold-rolled
steel. The decision came after U.S. Steel Corp. lost $1.5 billion
last year, closed its last blast furnace in the South and laid off
thousands of workers, blaming China.
Late last month , U.S. Steel filed a trade complaint against
China at the International Trade Commission, alleging price fixing,
trans-shipment via third countries to avoid duties and
cyber-espionage to loot technology off U.S. Steel computers.
China's Commerce Ministry has urged U.S. authorities to reject the
complaint, and said allegations of intellectual property
infringement "are completely without factual basis."
China says it isn't guilty of dumping -- or selling a product at
a loss in order to gain market share -- and calls U.S. and EU
measures and investigations forms of protectionism. It says it has
mothballed factories and intends to cut more, with plans to lay off
up to 1.8 million steel and coal workers.
Officials say it is natural for complaints against China to
increase as the country takes on a large share of global trade.
"As the largest trader in goods, it's quite understandable for
us to have so many" complaints, China's Commerce Minister Gao
Hucheng said recently. "We need to take it as it comes and live
with it."
One way of tracking China's support is by looking at subsidies
reported in corporate filings on the country's two main stock
exchanges in Shanghai and Shenzhen.
According to a Journal analysis of nearly 3,000 domestic-listed
Chinese companies in 2015, reported government aid rose to more
than 118 billion yuan, or more than $18 billion, last year compared
with about 92 billion yuan in 2014.
Reported subsidies have risen roughly 50% since 2013, based on
figures from Shanghai data provider Wind Information Co. Under
Chinese accounting standards, such aid can be cash or other perks
like subsidized power or land, but doesn't include some other
support, such as capital injections from the government as an
equity shareholder.
Recipients include an ethanol producer that said it was promised
as much as 40 million yuan ($6.1 million) in subsidies in the first
three months this year because of "grave operating
circumstances."
A producer of titanium dioxide -- which is used in products such
as paint and sunscreen -- won about 28 million yuan ($4.3 million)
in cash assistance as it seeks to expand in the North America and
elsewhere.
Another company, Yunnan Aluminium Co., obtained nearly 500
million yuan ($77 million) in subsidies since late 2015, securities
filings show. In the first half of 2015, the company says its
production of alumina -- the starting material for smelting
aluminum metal -- jumped 40%, even as revenue sank amid weakening
prices.
Company representatives didn't respond to requests for comment.
An official at the provincial Department of Finance, which
administered much of the cash aid, said it acted to protect Yunnan
Aluminium's 10,000 jobs.
"The government's aim is to help maintain social stability," the
official said.
Other countries, including the U.S., offer substantial support
for struggling industries.
Experts cite differences in China, which they say is less open
about its use of subsidies and more inclined to use them to promote
exports. China has repeatedly said it would shutter unneeded
factories, without following through.
The need for capacity cuts in China has long been apparent. More
than 40% of its major steel companies were losing money in the
first half of 2015, according to the China Iron and Steel
Association.
China's Ministry of Industry and Information Technology, which
oversees the steel industry, told the Journal in 2014 that
authorities were already "in the process of implementing" capacity
reductions.
Since then, Chinese crude steel production has fallen 2%
year-on-year in 2015 to about 804 million metric tons. But industry
experts in China, the U.S. and Europe say a further 200 million
metric tons of capacity -- or about 25% of China's production --
needs to be cut to restore market balance. China's steel exports
jumped around 20% last year to 112 million metric tons, according
to customs data.
A 63-page "investigation initiation checklist," filed last year
by U.S. Steel Corp., Nucor Corp. and the United Steelworkers union
to demand import tariffs on rolled steel, found 44 separate subsidy
programs, including seven that give Chinese steelmakers cheap or
free land, iron ore, coal, and power; eight that offer discount
loans; 15 tax breaks; and 11 programs that give companies money
directly.
Some of the programs date back years, but others were active in
the past 12 months, including subsidized export loans, the document
showed.
"It's the whole range of practices that keep these zombie
companies alive," said Roger Schagrin, a lawyer for U.S.
steelmakers.
At the time, a spokesman for China's Commerce Ministry said
restrictions on Chinese steel would not solve the global
overcapacity problem, and encouraged Chinese steel companies to
defend their rights.
Other Chinese products rattling markets include diesel fuel,
with Chinese exports rising nearly 80% in 2015 over 2014, according
to customs data. China has loosened restrictions to let private
refiners export fuel for the first time, given weak domestic
demand.
While U.S. energy companies shed staff, China's by and large
haven't. Refining giant China Petroleum & Chemical Corp., whose
net profit fell by 30% in 2015, told the Journal no employees have
been laid off since late 2014 when oil prices began to fall, and
that it had "no plan for any future layoffs." The company, also
known as Sinopec, employs about 351,000 people.
China's aluminum production, meanwhile, rose to 32 million tons
in 2015, double the level in 2005. Exports soared to 6.7 million
tons from 2.6 million during the same period, helping push global
prices down 40% in the past five years. The number of smelters in
the U.S. has fallen to four from 23 in 2000, destroying thousands
of jobs.
Tensions over lost jobs reflect wider frustrations that China
hasn't lived up to all the promises it made when it joined the
World Trade Organization in 2001.
According to data collected by the WTO, China accounted for
around 25% of all anti-dumping measures reported between 1995 and
2014, more than any other nation. The U.S. was the target in about
5% of measures, the data show.
--Kersten Zhang and Yang Jie in Beijing contributed to this
article
(END) Dow Jones Newswires
May 08, 2016 18:51 ET (22:51 GMT)
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