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The charts that show why China really is responsible for the plight of the UK steel industry The charts that show why China really is responsible for the plight of the UK steel industry
(35 minutes later)
“It is regrettable that some people in Britain blame China for what is happening in the British steel industry and accuse China of 'dumping' steels in Britain and pricing local companies out of the steel market”“It is regrettable that some people in Britain blame China for what is happening in the British steel industry and accuse China of 'dumping' steels in Britain and pricing local companies out of the steel market”
So says that Chinese ambassador to the UK Liu Xiaoming in a defensive article for today's The Daily Telegraph.So says that Chinese ambassador to the UK Liu Xiaoming in a defensive article for today's The Daily Telegraph.
No doubt it’s regrettable from his perspective that people in the UK are complaining of Chinese dumping. It's an uncomfortable thing to be accused of. No doubt it’s regrettable from his perspective that people in the UK are complaining of Chinese dumping. It's an uncomfortable thing to be accused of. But that doesn’t make the dumping charge untrue.
But that doesn’t make the dumping charge untrue. Here’s why, in 10 charts, we should be sceptical of Mr Liu's case.
Here’s why, in 10 charts.
There is huge overcapacity in the domestic Chinese steel industry. There is huge overcapacity in the domestic Chinese steel industry. 
Less than 75 per cent of domestic capacity is being used:Less than 75 per cent of domestic capacity is being used:
It’s important to recognise that this overcapacity has been created by an avalanche of cheap loans from state-owned banks to state-owned steel companies. It’s important to recognise that this overcapacity has been created by an avalanche of cheap loans from state-owned banks to state-owned steel companies. The Chinese corporate sector is notoriously over-leveraged. And Chinese steel companies are among the most over-leveraged of all companies in China as this (showing interest payments as a percentage of operating profits) demonstrates:
The Chinese corporate sector is notoriously over-leveraged. And Chinese steel companies are among the most over-leveraged of all companies in China as this shows:
If you think Tata's Port Talbot plant has problems with losing money take a look at the negative profitability of Chinese steel makers:If you think Tata's Port Talbot plant has problems with losing money take a look at the negative profitability of Chinese steel makers:
Overall profit margins in Chinese steel manufacturing were already pitifully low relative to other sectors of the Chinese economy. And they have been falling further:Overall profit margins in Chinese steel manufacturing were already pitifully low relative to other sectors of the Chinese economy. And they have been falling further:
Two factors have driven that lavishing of resources on. One is cronyism and corruption. The other has been a political concern in Beijing to keep employment high. That concern is entirely understandable. Two factors have driven that lavishing of China's national resources on steel production in recent years. One is cronyism and corruption. The other has been a political concern in Beijing to keep manufacturing employment levels high. That concern is entirely understandable. But these activities have global economic implications that must be recognised. 
But these activities have global economic implications that must be recognised. 
China is easily the world’s biggest producer of steel. China’s share of output has risen from a quarter to a half in a decade:China is easily the world’s biggest producer of steel. China’s share of output has risen from a quarter to a half in a decade:
There is global overcapacity in steel, but China is easily the biggest source of it:There is global overcapacity in steel, but China is easily the biggest source of it:
If that capacity merely had domestic impacts in China that would be one thing. But its exports have exploded: If that capacity merely had domestic impacts in China that would be one thing. But its monthly exports have exploded:
China is now easily the world’s biggest exporter of steel by volume: China exports more in a month now than the UK industry produces in a year.
And that is one of the central reasons the global steel price has collapsed. The country is now easily the world’s biggest exporter of steel by volume as this from the World Steel Association (in millions of tonnes produced a year) shows:
The substantial losses of Chinese steel firms is strong evidence it products are being sold on world markets below its true cost of production (factoring in the soft bank loans). And that surge in exports is one of the central reasons the global steel price has collapsed:
China readily admits that it has overcapacity, having laid out plans to reduce annual capacity by 100-150 million tonnes and to reduce employment by 500,000. The big losses of Chinese steel firms is strong evidence that China's steel is being sold in international markets at below its true cost of production.
But political and economic dysfunction means that success cannot be assumed. And China readily admits that it has overcapacity, having laid out plans to reduce annual capacity by 100-150 million tonnes and to reduce employment in the sector by 500,000.
The difficulties of the UK steel sector are not entirely due to China. There is a legacy of underinvestment. An excessively strong sterling over the past thirty years has not helped. UK firms have high energy costs relative to other nations in Europe, as this chart from Open Europe shows: But political and economic dysfunction in Beijing means that success cannot be assumed.
The difficulties of the UK steel sector are not entirely due to China. There is a legacy of underinvestment. An excessively strong sterling over the past thirty years has not helped the sector's international competitiveness. UK firms have high energy costs relative to other nations in Europe, as this chart from Open Europe shows:
But Mr Liu is wrong in his main point. China is a major big part of the story of the current plight of the UK steel sector.But Mr Liu is wrong in his main point. China is a major big part of the story of the current plight of the UK steel sector.
Mr Liu says Chinese exports are only 11 per cent of UK steel imports.Mr Liu says Chinese exports are only 11 per cent of UK steel imports.
But that’s a sharp rise on previous years: But that’s a sharp rise on previous years as this from the EEF manufacturers' organisation in the UK shows:
Moreover, it’s China’s influence on the global price of steel that matters, not its share of UK imports. Moreover, it’s China’s influence on the global price of steel that matters, not its share of UK imports. A glut of Chinese steel supply in Europe will force down the European price and prompt more imports to the UK from mainland Europe whether they are from China or not.
Tough European anti-steel dumping tariffs on China are probably warranted under the World Trade Organisation rules (as the American government has already decided) since it's pretty clear that China is producing steel with heavy government subsidies (in the form of cheap loans) and selling the product on world markets below its true cost. Tough European-level anti-steel dumping tariffs on China are probably warranted under the World Trade Organisation rules (as the American government has already decided) since it's pretty clear that China is producing steel with heavy government subsidies (in the form of cheap loans) and selling the product on world markets below its true cost.
The UK government's decision should not be based on the principle but a cost-benefit analysis. Do the benefits of shielding UK steel industry from cheap Chinese imports outweigh the costs of higher than otherwise steel import costs for manufacturers such as car makers? The UK government's decision should not be based on musing over the principle of protectionism but a cost-benefit analysis. Do the benefits of shielding UK steel industry from cheap Chinese imports outweigh the costs of higher-than-otherwise steel import costs for successful UK manufacturers such as car makers?
Another factor that should shape the UK policy response is the likelihood of a medium-term steel price recovery. Could tariffs help buy time for a buyer for Port Talbot to emerge? Or are ministers in danger of writing an indefinite blank cheque? Another factor that should shape the UK policy response is the likelihood of a medium-term steel price recovery. Could tariffs help buy time for a credible buyer for Port Talbot to emerge? Or by seeking protection would ministers be in danger of distorting the domestic economy in other ways?