Global Steel Crisis Overshadows US-China Annual Meet
The global steel crisis took centre stage during an annual meeting between US and Chinese officials, with the two sides openly sparring over the source of the problem and ultimately agreeing to hold further discussions with other international partners, including under a possible “global steel forum.”
While steel manufacturing dominated headlines during the 5-7 June gathering in Beijing, the meeting also gave both sides the opportunity to discuss other areas of common interest, such as climate change cooperation.
This year’s US-China Strategic and Economic Dialogue marks the last one for the administration of US President Barack Obama, whose final term in office comes to a close in January. It also comes in the midst of a heated election debate in the United States, with presidential candidates often drawing attention to Washington’s relationship with Beijing, including key points of contention between the two economic powers.
“This has been a very professional, very serious conversation,” said US Secretary of State John Kerry after the talks came to a close.
“We haven’t hesitated to talk about tough issues. Didn’t agree on everything, but the importance is that we’re willing to have those conversations, and frankly, find ways to bring ourselves together and resolve differences,” he added.
The US’ top diplomat also suggested that this week’s talks could potentially serve in helping both sides prepare for the upcoming G-20 summit of major advanced and emerging economies, which China is due to host this upcoming autumn.
“I think everybody would agree that we have made progress in setting out an agenda for the G-20 that will help to make that also a successful meeting,” said Kerry.
Finance officials square off on steel
At the start of the talks, the finance chiefs for the two major economies – which together account for one-third of global GDP – publicly disagreed on the cause of the current overcapacity problem with steel and aluminium, along with whether the situation is really as dire as the US and others have claimed.
Speaking during Monday’s opening session, US Treasury Secretary Jack Lew warned of the damage China’s production in steel has allegedly caused the global economy.
“Excess capacity has a distorting and damaging effect on global markets and implementing policies to substantially reduce production in a range of sectors suffering from overcapacity – including steel and aluminium – is critical to the function and stability of international markets,” he said.
The US’ concerns were countered by Chinese officials, who raised issues including how much of a role China has in addressing the steel crisis, along with how much control Beijing actually has over its own domestic production.
“The overcapacity problem, particularly in steel, has been subject to much hype around the world,” said Chinese Finance Minister Lou Jiwei in remarks to reporters.
The Chinese finance official also countered criticism from Lew and others, noting that back when Beijing began its efforts to scale up its investment in infrastructure, “the whole world was grateful that China had boosted world growth.”
“Now the world is pointing its finger at China’s overcapacity problem, saying it’s dragging down the whole world. What about what the world was saying before?” said Lou. He also referred to the heavy private-sector involvement in the Chinese steel sector, suggesting that government influence on cutting domestic production has its limits.
The effects of steel overcapacity on the global economy have increasingly stoked tensions among major players in the sector, including at the recent G-7 leaders’ summit in Ishe-Shima, Japan, along with a high-level meeting in Brussels last April on the subject. The latter of these was hosted by the Organisation for Economic Co-operation and Development (OECD), together with the Belgian government. (See Bridges Weekly, 2 June 2016)
US officials have been among those warning that they could pursue additional trade enforcement actions against players seen as undertaking unfair trade practices, including toward China. (See Bridges Weekly, 21 April 2016)
Ultimately, concluding remarks from top officials indicated plans to continue discussions in different frameworks, along with noting some steps that China has agreed to undertake in response to the situation.
“Both sides recognise that excess capacity in steel and other sectors is a global issue,” said Chinese Vice Premier Wang Yang at the end of this week’s talks. Crediting the problem to the slow global economic recovery and lowered demand, the official called for collective action, suggesting that “legal market and proper policy tools” should be used.
Lew, for his part, said that US continues to push China on “further reducing industrial capacity to move towards stronger and more sustainable and balanced growth while reducing distorting effects on global markets.”
“We welcome China’s commitment to undertake further steps that would enable its steel industry to be more responsive to market forces, and in doing so, progressively reduce its excess production capacity,” said the US treasury chief on Tuesday.
“To this end, China has committed to ensure that its central government policies and support do not target the net expansion of steel capacity, and to actively and appropriately wind down zombie enterprises through a range of efforts, including restructuring and bankruptcy,” he added, indicating that Beijing is also committed to working with other partners at the OECD, as well as being part of a possible “global steel forum” with Washington.
However, he said that the two sides remain at odds over excess capacity in aluminium, indicating that these would be the subject of additional discussions further down the road.
A factsheet on the economic outcomes of the Beijing talks outlined in further detail their discussions on steel, including on China’s planned steps to continue cutting excess capacity and making sure it is not hindering market forces, thus allowing its domestic sector to become more efficient.
“The United States and China are to ensure that no central government plans, policies, directives, guidelines, lending, or subsidisation targets the net expansion of steel capacity,” said the factsheet, noting also Beijing’s plans to support workers who may become unemployed following steel plant closures or cuts.
The OECD’s Steel Committee is due to meet from 8-9 September, with officials from both sides due to participate.
BIT update at G-20?
Past iterations of the annual US-China meet have often served for announcing updates in their negotiations for a bilateral investment treaty (BIT), an initiative that kicked off in 2008 and was later renewed in 2013. (See Bridges Weekly, 18 July 2013)
Following this week’s talks, officials confirmed that the US and China have agreed to speed up the BIT talks, while not detailing how much progress exactly was seen during this current meeting.
“The two sides are to push the BIT negotiations forward expeditiously with a view toward reaching a mutually beneficial and high-standard treaty that effectively facilitates and enables market access and market operation,” said a joint factsheet on economic outcomes.
Regarding the timeline, Chinese Vice Premier Wang Yang indicated that both sides will exchange revised “negative list” offers later this month. Under a negative list, all industry sectors are open to investment except those specifically deemed as closed.
Furthermore, the US and China “will work toward a mutually beneficial high-standard agreement at an early date,” said Wang.
Separately, the US treasury chief suggested that the two sides should aim to advance the BIT talks before the September G-20 summit in Hangzhou, China.
While talks on steel were reportedly contentious, discussions on climate change saw both sides issue statements noting the benefits of past cooperation – including last year in the lead-up to the UN climate talks in Paris – while calling for future collaboration going forward.
“While the breakthrough at Paris and the accord would not have been possible without our cooperation – in particular, President Xi and President Obama took the lead in announcing the respective post-2020 target and really demonstrated a sense of responsibility as major countries – it also shows that we have more common interests than differences, as long as we opt toward dialogue, not confrontation,” said Chinese State Councillor Yang Jiechi.
According to a factsheet issued after the talks, the two sides have pledged to collaborate in bringing the Paris climate accord “into force as early as possible,” along with reiterating earlier statements backing the adoption this year of a phase-down amendment for climate-warning hydrofluorocarbons (HFCs) under the Montreal Protocol on Substances that Deplete the Ozone Layer.
ICTSD reporting; “China Pushes Back Against U.S. Complaints of Industrial Overcapacity,” THE NEW YORK TIMES, 6 June 2016; “U.S., China Find Common Ground Elusive at High-Level Talks,” THE WALL STREET JOURNAL, 6 June 2016; “China rails against global ‘hype’ on overcapacity,” THE FINANCIAL TIMES, 6 June 2016; “Lew hopes U.S.-China bilateral treaty progress to come before G20,” REUTERS, 7 June 2016.