The European Union has filed a laundry list of complaints against Chinese dumping, from shoes to fasteners. Ceramics, for example. Household ceramics got hit last week. In 2011, it was building ceramics. In 2010, it was ceramic tiles, which led to a punitive tax of 69.7%—punitive for consumers who ended up having to pay higher prices, though it was a nice gift to European producers. Now, it has chosen another target, Chinese steel. But with nearly half of the world’s steel production, the Chinese steel industry is the bully on the block. And it flexed its pumped-up muscles—putting at stake the very manna that European officials have been praying for.
Rumors of the Chinese savior appearing on the horizon goosed financial markets innumerable times. China, out of the goodness of its big heart, would use its $3.2 trillion in foreign exchange reserves to bail out the Eurozone with the stroke of a plastic pen. Turns out, China didn’t have a big heart but a list of unpalatable demands—so unpalatable that even a desperate European panhandling delegation sent to Beijing in November turned them down.
Ten days ago, another top-level EU begging expedition tried to lure Premier Wen Jiabao into plowing part of China’s foreign-exchange trillions into the European bailout fund, a dreadfully convoluted and opaque creature that they passed off as a rose. But rather than kick the conniving beggars out, Wen declared soothingly that Europe was an important partner, and that China and the EU would work together to solve the debt crisis—and the delegation left once again empty-handed.
But yesterday, it was brutal. It was an unnamed official at the Commerce Ministry who slugged the EU and everyone who was still steeped in some sort of hope that China would, out of the goodness of its heart, bail out debt sinner countries in the Eurozone.
The trigger: earlier this week, the European Commission opened an anti-subsidy investigation of Chinese organic-coated steel (galvanized and pre-painted) of the type used in household appliances. In December, the Commission had already launched an anti-dumping investigation of the same products. Two separate investigations and two complaints with the World Trade Organization on the same products.
The instigator: Eurofer, the European Steel Association. In January, it whined to the Commission about Chinese steelmakers that didn’t respect the rules of free trade—they received a range of subsidies, such as tax exemptions, preferential loans, and below-market cost of materials that the government purchased for them.
The European steel industry is in trouble. Demand cratered. Producers from ArcelorMittal to ThyssenKrupp have shut down steel mills to prop up prices—but all it did was invite Chinese steelmakers.
And they’re desperate. After years of explosive growth, they’re facing colossal over-capacity, just as demand is slumping. Premier Wen Jiabao acknowledged the problem during a visit to Hunan, where much of the steel is made, and he exhorted the industry to consolidate. So the trade complaint came at a very inconvenient moment.
“Launching an anti-subsidy investigation at this time sends the wrong signal of trade protectionism that will not only cast a shadow over China-EU steel trade, but also damage China-EU efforts to respond to the crisis,” said the unnamed Ministry of Commerce official. “With … many European countries deeply trapped by the sovereign debt crisis, all countries should have a more open, cooperative and forgiving attitude in facing the crisis.”
Open, cooperative, and forgiving towards China—the new rules that China is imposing on the game. Or perhaps just a re-write of very ancient rules. Those with the money get to set the terms when those who need it are desperate. Remains to be seen if someday the Eurozone will be desperate enough for Chinese money to compromise on the support for its coddled industries.
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.