China is overcapacity is a full employment program

April 24, 2017

HANGZHOU, China — China’s vast steel industry is a major target of President Trump. But this hulking shell of a mill here shows why China is likely to keep pumping out more and more steel, inflaming trade tensions between the two countries.


The Hangzhou steel mill, a vast labyrinth of blast furnaces, warehouses, chimneys and worker dormitories covering hundreds of acres, was one of Mao Zedong’s favorite projects. Built in just 13 months in the late 1950s, it once employed 25,000 workers.

Pollution and the march of progress made the mill a liability. But closing a mill eliminates well-paying jobs — a central reason China keeps factories churning out steel the world doesn’t need.

When authorities do manage to shutter a plant, it is a costly ordeal, as the story of Hangzhou shows. With the help of a $34 million grant from government officials, the Hangzhou plant owner, Hangzhou Iron and Steel Group, offered the 12,000 remaining workers lavish severance benefits and pensions.

“I don’t have to wake up early,” said Tang Guomin, 49, who had labored at the blast furnaces since he was 18 years old. He received nearly six years’ pay from the company as severance and when he turns 50 in a few months, he will be able to collect an inflation-adjusted pension from the government equal to 90 percent of his previous pay for the rest of his life.

“I sleep till I wake and don’t have much to worry about,” he said, while doing his family’s morning vegetable shopping at a street market. “I miss the factory, but that time won’t be back again.”

Invoking an obscure trade law, President Trump signed an executive order on Thursday for a 270-day review to determine whether steel imports were harming national security. If the Commerce Department does find harm, Mr. Trump will have up to 90 days to decide whether to impose broad import restrictions.

China is an obvious target of the order, though the impact could ripple worldwide. While only about 2 percent of American steel imports come directly from China, global steel makers and industry experts blame China for shipping its surplus steel to other countries, which drives down prices and prompts those countries to further process the steel into high-value products for export to the United States. The Trump administration, which has made it clear that it will take a more aggressive stance on steel, has suggested it could bring trade actions against those countries as well.

China denies that it sells excess steel to other markets below the cost of making it, a move called dumping. But China does concede that it has too many steel factories making too much steel.

The trick is trimming that excess capacity, which is proving to be neither easy nor cheap. Steel making represents a reliable source of high-wage jobs in a country where economic growth has slowed compared with previous years. Steel also remains a key material for China’s manufacturing sector, the world’s largest.

“Steel is the food for China’s industry,” said Wang Guoqing, the research director at the Lange Steel Information Research Center, a Chinese industry group in Beijing. “It is in a key position for China’s development and infrastructure.”

The steel industry in the United States employs about 140,000 people, or less than one-tenth of 1 percent of the American work force. China’s steel makers, by contrast, employed 4.7 million workers in 2014, the last official figure released, or 0.6 percent of China’s labor force then. Nearly 60 years after Mao’s drive to make China a steel giant contributed to a famine that killed millions of people, the country now makes as much steel as the rest of the world put together.

Today, China’s steel sector represents the sort of bloated, wasteful industry that people both inside and outside the country say is holding back economic development. China in early 2016 committed to closing steel mills representing 100 million to 150 million tons of capacity over five years, or roughly a tenth of its capacity then. China closed 65 million tons of capacity last year and plans to close another 50 million tons this year, according to a speech in early March by Premier Li Keqiang.

Yet production remains stubbornly high, and new mills have continued to open. China’s steel mills produced a record quantity of steel last month. China hasn’t released more recent data on total steel capacity.

For now, China’s steel exports are shrinking, though it isn’t clear how long that will continue. China’s appetite for steel has improved in recent months as government lending and spending and a revival in its property industry lift the economy and encourage consumption. But the government has said it wants to rein in lending, concerned that the economy may be too reliant on ever-rising debt.

Mr. Trump’s advisers are using steel as part of a broader push against China’s excess factories. They are singling out steel while blaming Chinese industrial policies for overcapacity in other sectors, like aluminum and solar panels.

“To me the objective is to make it uneconomic, to make it expensive, to do something that has inefficiency in the market,” said Robert Lighthizer, Mr. Trump’s nominee to become United States trade representative, at his Senate confirmation hearing.

China calls that effort shortsighted, saying it has made itself an indispensable provider of high-quality steel to the world at a time when many American steel mills are aging. Advocates of a more confrontational American trade policy fail to understand this, said Li Xinchuang, the dean of the China Metallurgical Industry Planning and Research Institute, a government agency.

“I have explained this time and time again, but they won’t listen,” he said. “It’s like playing the lute to a cow.”

The Hangzhou steel plant, and the city that it is named after, represent China’s effort to shift its economy away from industries like steel. The city of at least 4 million urban residents is the hometown of Alibaba, the Chinese e-commerce giant, and also contains the headquarters of Geely, the Chinese automaker that bought Volvo from Ford in 2010.

The former factory looks a little like a postapocalyptic scene on a Hollywood movie set: cavernous warehouses moldered on a damp spring day, windowless and doorless. Conveyor belts and other steel equipment that might have scrap metal value had already been removed, leaving barren concrete tubes and walls. A long row of black hopper cars rusted on a railroad siding.

Migrant construction laborers camped in the evening in a dilapidated, three-story concrete building, resting after a long day of tearing apart old buildings as the next step in clearing the site. Tall grass, leafy bushes and even small trees had begun growing vigorously in open areas of the factory, sometimes pushing their way up through cracks in concrete plazas.

“It looks beautiful,” said Le Rong, a 42-year-old migrant worker involved in dismantling the complex. “I even told my wife and kids about it.”

A Hangzhou Iron and Steel spokesman declined to discuss what the company would do with the site, saying it had not yet been decided but that the company would find an “innovative” use for the land. Former steel mill sites in other prosperous Chinese cities like Hangzhou have often been redeveloped as real estate projects.

Some of China’s steel plants are outdated and many of them are polluting. Revamping them isn’t cheap. In addition to the $34 million it received to close the Hangzhou plant, Hangzhou Iron and Steel in 2015 received nearly $106 million in subsidies and cheap government loans to help cover overall costs of upgrading its plants.

For many locals, closing the mill has meant cleaner air — the reason officials said the mill was shut down.

State-run media said shortly before the Hangzhou mill closed that the aging site had been releasing 7,000 tons a year of sulfur dioxide, an important cause of acid rain, and 3,000 tons a year of soot.

Xu Yuemei, another retired steelworker, said that when the factory was still operating, garments that she hung on a clothesline turned black or yellow before they dried. Mr. Tang remembers a pervasive haze.

“There was dust in the air; I couldn’t see guys 100 meters away from me,” he recalled. “I could smell choking ammonia gas in the air until the factory shut down.”

“After it shut down,” he said, “everything is gone, including the pollution.”

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  • Lawrence Boros
    The U.S. trade deficit in 2015 was 43% clothing, 23% automotive, 19% energy, 11% electronics, and only 4% steel. Been to China. The air is acrid and the water feted. Steel should be the lowest priority in eliminating the trade deficit. How about the rest of the stuff from China. China is 50% of the trade deficit. Since renewal of MFN for China in 1998, the trade deficit has been driving our Federal deficit. The Federal deficit trajectory right now is straight down. We are running out of time!