While Feigning Overcapacity Concerns, China’s On Track to Export 100 Million Tons of Steel in 2024

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"We're all trying to find the guys who did this," say state-owned steelmakers.

Chinese steel exports are forecast to reach an eight-year high in 2024, underlining the drumbeat of criticisms of chronic overcapacity in many of the country's manufacturing sectors.

The Financial Times quotes an estimate from a Shanghai-based metal market consultancy that expects China will export more than 100 million tons of steel this year. If that sounds like a lot, you're right: It is. That's more steel than the United States - the world's fourth largest producer by volume - makes in a year. But there's now little demand in China's once vast property and infrastructure markets that fueled the country's incredible economic growth. One is dried up and the other is tapped out. But, even as its steelmakers run in the red and its prices bottom out, the central government has only made halfhearted attempts to rein in a bloated industry that accounts for more than half of global steel production.

For example, take last week's news that Beijing had suspended its system of approvals for the construction of new steel plants. Instituted after the last Chinese-led steel overcapacity crisis, its steelmakers have had to mothball existing capacity as a condition of building newer production lines. But production climbed despite the capacity cuts. It was already the largest national steel industry in the world. And even though approvals for new mills are now halted, a recent Bloomberg article notes a Citigroup estimate that China has more than 80 million tons of approved capacity that's not even online yet.

The FT reports that last week the China Iron and Steel Association, "which represents the country's big state-owned mills, urged steelmakers to end their 'vicious competition' and accused them of 'relying on 'price wars' to grab market share.'" This brings to mind to the comedy sketch in which in a guy in a hot dog suit tries to deflect blame for an accident involving a Weinermobile:

We're all trying to find the guys who did this!

Anyway, look: Even if it wanted to, Beijing couldn't just turn its national steel industry off; there is plenty of subsidy and incentive at all levels of government to keep these mills running.

But it doesn't want to anyway. The Chinese government shrugs at its steel overcapacity problems because steel is a foundational manufacturing input, the kind of thing you need to make everything from toasters to wind turbines. And cheap steel is effectively a subsidy for every industry it feeds into. It's part of the reason why Chinese manufacturers have flooded the world with solar panels and intend to do the same with electric vehicles.

So don't hold your breath waiting for that government to change course here; it intends to ride its manufacturing sector out of its current economic doldrums. This industrial overcapacity is a feature, not a bug, of China's model of state capitalism.

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