Hangzhou: The global steel glut is shaping up as a hot-button issue as leaders of the Group of 20 major economies meet in China, securing a mention in their communique.
That would show that overcapacity in steel — for which China has come in for criticism — remains on the radar for the world’s biggest economies months after it was raised in the discussions at a G7 summit in Japan.
The wording of the G20 communique is not final and could be altered before its release, according to two officials involved, who asked not to be identified because the negotiations are confidential. A copy of the planned statement was seen by Bloomberg.
“We recognise that the structural problems, including excess capacity in some industries, exacerbated by a weak global economic recovery and depressed market demand, have caused a negative impact on trade and workers,” G20 leaders will say, according to the communique. “We recognise that excess capacity in steel and other industries is a global issue which requires collective responses.”
The statement for the Hangzhou meeting echoes one from a July G20 gathering of finance ministers that expressed concern about the outlook for global growth. It warns that growth is still weaker than desirable and warns against a protectionist mood on trade and investment. China has recently found itself stymied on potential investments in the UK and Australia.
China has said the steel issue is one of demand rather than supply. Cutting overcapacity requires global action, China Vice Finance Minister Zhu Guangyao said Friday at a briefing in Hangzhou. Fewer accusations and more cooperation on the matter would benefit the global economy, Zhu said, adding China had been first among the major economies to take action in reducing overcapacity.
“There are concerns on specific issues like steel production, which today is excessive,” said Brazil’s Finance Minister Henrique Meirelles. “That will be a theme,” he said in reference to discussions at the G20 summit. China, which built up considerable capacity, is at the heart of the issue, Meirelles said.
The global flood of Chinese steel is stoking trade tensions with nations from India to Europe, and US lawmakers asked President Barack Obama to raise the issue with his hosts at the G20. President Xi Jinping has ordered as much as 150 million metric tons, or about 13 per cent, of annual capacity to shut by 2020 as part of the Communist Party’s plans to address industrial overcapacity amid slowing demand for basic materials. China makes about half of the world’s steel.
The draft communique calls for the formation of a Global Forum on steel excess capacity, to be facilitated by the OECD. “We look forward to a progress report on the efforts of the Global Forum to the relevant G20 ministers in 2017,” it said.
Obama and Xi met Saturday on the sidelines of the G20, where they discussed China’s role in “addressing industrial excess capacity, including in the steel and aluminium sectors, as part of a global effort,” according to a White House statement on their meeting.
Earlier this year, a group of 25 nations, including the US, said they were unable to persuade China to take greater accountability for the overcapacity in steel production. Donald Trump, the Republican nominee for US president, vowed that if he is elected, his administration would ensure “American steel for American infrastructure” in a June speech outside of Pittsburgh.
Speaking to reporters on the sidelines of the G20 meeting, European Commission President Jean-Claude Juncker said there was an urgent need to take the steel issue seriously.
“As far as the overcapacity of the steel sector is concerned, we consider that this is a global problem but there is a specific Chinese dimension we have to address and we did address in the last months.”
The draft communique separately warns that financial market volatility is a downside risk to growth, and says G20 members will use all tools available to boost their economies. Monetary policy alone cannot spur balanced growth, the statement says, another nod to the potential need for greater fiscal action on the part of governments.
“We reaffirm our previous exchange rate commitments, including that we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes,” according to the draft.
This year could be the lowest growth year since the global financial crisis, International Monetary Fund Managing Director Christine Lagarde separately told business leaders earlier Saturday at a panel in Hangzhou.
“So while the recovery’s under way, it’s not moving very fast, and it’s only moving because of one critical tool being used by central banks and that is monetary policy,” she said. “Growth in 2016 and possibly in 2017 is yet again going to be a year of growth below 3.5 per cent. Way below that.”
The G20 draft statement also made passing reference to the U.K.’s decision to leave the European Union, saying the vote added to the global economic uncertainty.
Still, “members of the G20 are well-positioned to proactively address the potential economic and financial consequences stemming from the referendum,” the statement says. “In the future, we hope to see the UK as a close partner of the EU.”
— Bloomberg
