EU should not use China’s overcapacity problems as excuse for trade protectionism

By Hu Weijia Source:Global Times Published: 2016-2-23 0:18:01

Industrial overcapacity in China has worsened over the past few years, wreaking considerable damage on the global economy, the European Union Chamber of Commerce in China (EUCCC) said on Monday. The warning echoed recent media reports saying some Western countries would impose more pressure on China regarding the overcapacity problem.

The EUCCC said in its report that China's overcapacity has translated into a huge trade surplus, resulting in rising trade conflicts.

Following the rise in China's steel exports to Europe in recent years, the EU has recently imposed anti-dumping duties on Chinese steel, and in this regard the EUCCC's report seems like a justification for the rise in trade protectionism that some Western countries have launched against China.

However, there are some different views about the alleged "trade surplus" brought by China's overcapacity problems. The domestic coal industry is undoubtedly one of the sectors with excess capacity, but official data shows that exports of coal and lignite from China came to just 5.3 million tons in 2015, far less than the country's imports of 204.1 million tons in the same period.

Despite the EUCCC's warning, exaggeration of the negative effect from China's overcapacity on the global economy should be avoided. The National Development and Reform Commission (NDRC), China's top economic planner, has repeatedly said that the country would not seek to export its outdated capacity to other countries and regions.

In the case of the steel industry, increased exports from China tell only part of the story. According to the EUCCC's report, China's annualized steel exports from January to October 2015 reached 110 million tons, which accounts for just 12 percent of the country's total output. This ratio is relatively low; some other countries and regions export more than 30 percent of their total steel output. The China Iron and Steel Association said the country has never specifically encouraged steel exports, and that there is no export-oriented policy for the industry, which generates relatively high pollution.

Despite the facts showing that China isn't exporting its way out of the overcapacity problem, it will not be easy to clear up the misunderstanding. Amid the slow recovery in the world's economy, some countries have turned to protectionism to safeguard their domestic industries, which explains the rising amount of trade probes into Chinese products.

The EUCCC's report said that overcapacity in China directly impacts the level of global trade tensions, but the increased trade remedy probes have mainly been caused by global overcapacity and protectionism instead. According to the Ministry of Commerce, global crude steel production was over 50 percent more than total demand in 2015. Some countries may turn to protectionism to reduce imports when overcapacity starts to affect their domestic industries.

Some advice about tackling China's overcapacity problem proposed in the EUCCC's report is pertinent and the country's efforts to address the issue are likely to continue. But simply putting pressure on China will not be enough to curb global overcapacity, and international cooperation is needed.

The author is a reporter with the Global Times.

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