“A risky strategy.”

Steel, which goes into nearly everything from skyscrapers to cookware, has become symbolic for what ails China, the world’s largest consumer of it. After years of colossal manufacturing and building booms, soaring demand for steel, and ballooning steel-making capacity, everything has curdled.

The average price of steel in China has collapsed 30.6% so far this year, after having already fallen four years in a row: 7.8% in 2011, 11.6% in 2012, 7.6% in 2013, and 16% in 2014, according to data from Beijing Lange Steel Information Research Center, cited by the People’s Daily, the official newspaper of the Chinese Communist Party.

Despite the crashing price, steelmakers have raised production: 881 million tons in 2011, 951 million tons in 2012, 1.07 billion tons in 2013, and 1.13 billion tons in 2014.

And just then, China’s miracle build-it-and-they-will-come, overstimulated, debt-bloated economy began plowing into a slowdown. According to data from the China Iron and Steel Association (CISA), steel consumption has begun to fall: down 3.4% to 738.3 million tons in 2014.

Steel consumption is likely to fall even more this year – now that new construction has caved, down 13.9% through October, that investment in the real estate sector is languishing, and that auto manufacturing was getting mauled, with sales plunging below last year’s level during the summer.

That auto nightmare sent the government into panic mode. In October, it cut a tax on smaller passenger vehicles. And now it’s putting together a passenger-car and light-truck subsidy package of the kind last seen during the Financial Crisis.

And China’s shipbuilders, oh my! Mingde Heavy Industry went bankrupt earlier this year. It’s not the only shipbuilder in trouble. In the first half, orders for new vessels collapsed by 72%! That’s 11 million deadweight tons of orders that evaporated – and most of that would have been made of steel.

Other industries are facing similar fiascos. And with 2014 steel production at 1.13 billion tons, and steel consumption at 738 million tons, the excess reached 391 million tons, or 53% of production!

Some of this pain was exported, at prices that are killing steelmakers in North America and elsewhere. The rest piled up in China – and is crushing the industry.

In 2015 through October, the 101 medium-sized and large steel companies that CISA tracks have lost a combined 72 billion yuan ($11.2 billion).

This included a 888 million yuan loss so far this year by China’s second largest steelmaker, state-run Angang Steel. When it reported a 1.04 billion loss for Q3, it said it was cutting costs and was benefiting from the lower iron ore and coking coal prices, the main raw materials for steel-making, but the collapse in steel prices was simply too much.

The People’s Daily blamed primarily – and somewhat sheepishly, being a Communist Party paper that has to toe the line on the official 6.9% GDP growth – “a drop in domestic demand stemming from China’s economic slowdown.”

The People’s Daily added this gloomy detail:

The Purchasing Managers Index (PMI) for China’s steel industry slumped to 37 in November, a seven-year low, according to data released on December 1 by the China Federation of Logistics and Purchasing. November was the 19th straight month that the reading stood below 50, which indicates the industry was in contraction.

For years, market share was all that mattered for these largely government-run enterprises funded by government-run banks. But now the bleeding appears to have some effect. Crude steel output for the first ten month in 2015 fell 2.2%. That’s barely a rounding error, given the gigantic surplus. Plus, in 2016, steel consumption is expected to fall 5%.

So overproduction is still getting worse. The People’s Daily:

Despite their financial losses, domestic steelmakers have been reluctant to either cut output or reduce capacity. Most steel companies are owned by governments of localities, where they contribute much of the local GDP, said Wang Bei, the researcher from mysteel.com. Consequently, the local governments prefer to subsidize these companies rather than let them cut capacity at the cost of hurting the local economy.

Many State-owned steel companies also have a social obligation to employ workers, she said. If they suspend production or reduce capacity, it can cost people their jobs, hurting local employment rates.

Furthermore, steel companies don’t want to risk market shares in case demand returns due to the country’s more supportive policies for infrastructure constructions.

That faith in endlessly booming growth, easy credit even for money-losing state-owned enterprises, and no-holds-barred stimulus that has driven the industry into the hole is still prevailing. “A risky strategy,” the People’s Daily calls it.

And so the official organ of the Communist Party gets gloomy about the steel industry and about the sharp slowdown of China’s government-coddled mega-industries: construction and manufacturing.

The boom in overcapacity and overproduction, and now the boom in losses, has been funded by debt that is going bad. And it’s clogging up the books of government-owned banks and other institutions. Much of it can never be paid back. So what to do?

The Chinese mining sector, which is going through its own carnage, might be the model. Bloomberg just reported that, “according to people with knowledge of the matter,” the government is setting up an investment company, owned by the State-Owned Assets Supervision and Administration Commission, to “absorb” this debt. So another bailout.

Perhaps the steel industry is hoping for such a bailout. Bad debt in China is apparently not allowed to implode except in tiny quantities, and only from time to time. The rest of the time, it will be transferred to the government where it can decompose out of sight. And the Chinese economy can continue to fund overcapacity, overproduction, and losses with new debt to chase its version of economic growth.

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