Brussels, Friday 2 September 2016 - Ahead of the G20 Summit in China on 4-5 September, AEGIS Europe, an alliance of manufacturing industries, calls on G20 leaders to take a stand against Chinese state-induced overcapacities and overproduction. Leaders must support the use of legally robust trade defence instruments that effectively address flagrant and recurrent dumping by Chinese producers across many sectors in global markets.
AEGIS Europe fully supports the 29 August message to G20 leaders from European Commission President, Jean-Claude Juncker, and European Council President, Donald Tusk, which states: “Urgent and effective action is needed to cut overcapacity in the steel and other sectors, including by tackling subsidies and other market-distorting measures that have contributed to it”.
“China now makes and sells more manufactured goods than any other country in the world. However, the defining feature of its industry is state-subsidised overcapacity. Examples of this are widespread - Chinese capacity in the solar sector is 1.3 times global demand. Silicon capacities are more than twice global consumption. Due to massive overcapacities, 60% of China’s aluminium industry’s production is loss-making. Chinese steel overcapacity is estimated to be 350 to 400 million tonnes, which dwarfs total EU annual steel demand of 150 million tonnes,” explains Milan Nitzschke, spokesperson for AEGIS Europe.
“Today, China’s overproduction and overcapacities are undermining companies and destroying jobs around the world. The Chinese state’s persistent and extensive state-financed overcapacities and over-ambitious strategy behind them are generating corrosive distortions in the global market. The one big state-planned economy of the world is leading global market economies on a goose chase,” points out Nitzschke.
G20 leaders must thoroughly assess the impact of state-subsidised overcapacities on global markets and endorse sustainable and fair trade, which is made secure by effective Trade Defence Instruments (TDIs). Mr Nitzschke adds, “EU manufacturers call on G20 leaders to urgently tackle this issue and find a solution to the continuing and overwhelming threat from China's failed state planning. They must ensure that international trade can rely on effective TDIs. These are essential to secure rules-based free and fair trade, as well as to promote undistorted market forces.”
“The EU has an established set of five ‘tests’ that determine whether a country is operating as a market economy. These criteria must remain at the heart of any TDI methodology,” stated Nitzschke. “According to the EU’s own assessment, China has only passed one of these tests. Based on these set of criteria, it is absolutely clear that market economy conditions do not yet prevail in China.”
“So long as China does not follow the rules of international free trade and continues to operate along non-market economy lines, with policy planning that favours distortions and overcapacities, the EU and its G20 partners must defend themselves through all legal means available,” concludes Mr Nitzschke.
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Notes for Editors
These four remaining Market Economy criteria remain unmet by China:
- Absence of government intervention in the management of companies.
- Transparent company law and corporate governance.
- Functioning property law and bankruptcy regime.
- A financial sector free from government manipulation
In the solar industry as reaction to antidumping measures in the EU and the U.S. China announced it would (i) reduce overcapacities and (ii) increase domestic demand for solar installations. Domestic demand has increased ten-fold. On the other hand, China's domestic industry has not consolidated. Instead, Chinese companies have continued to receive billions of state money to invest in additional overcapacities. (Chinese capacity is 1.3 times global demand.) Now the industry is facing the situation where Chinese solar companies have reached their annual domestic installations target in June 2016. The Chinese government has made it clear that further installations will not be supported. Therefore, the additional capacities are now generating 100% pure overproduction, which must be sold at dumped prices around the world. International market prices have dropped by up to 20% in only a few weeks. Massive dumping is again destroying competition in all countries which don't have effective trade defense measures against Chinese solar imports in place. Failed Chinese state planning leads to job losses around the world.
The EU ceramics industry is a world leader in producing value added, uniquely designed high quality ceramic products manufactured by flexible and innovative companies, mainly SMEs. The ceramics industry represents an annual production value of around € 28 billion and over 200,000 direct jobs and 2-3 times more indirect jobs (machinery suppliers, raw material producers, logistics, etc.) throughout the EU. The biggest threat to the EU’s ceramic industry is China’s structural overcapacity. Between 1995 and 2014 Chinese ceramic wall and floor tile production increased by more than six times. In 2014 Chinese ceramic wall and floor tile production exceeded 10 billion sq. m. (i.e. 10 times more than EU’s total ceramic tiles production). China’s annual production capacity is nearly 14 billion sq. m. Furthermore, China’s overcapacity in ceramic wall and floor tiles is equivalent to 4 times EU consumption. Moreover, Trade Defence measures in place or under investigation on ceramic goods in third countries would create a redirection of dumping from China to the EU, should EU weaken its trade defence policy.
According to the Wall Street Journal (9/5/2016) China’s primary aluminium production, rose to 32 million tons in 2015, triple the level in 2005. Exports of all aluminium products soared to 6.7 million tons from 2.6 million during the same period, pushing global prices down 40% in the past five years. Over the past decade, Chinese aluminium production has grown at an alarming rate. In 2000, China produced about 11 percent of the world’s primary aluminium – today, it produces more than half. Much of this expansion is being driven by artificial incentives, subsidies and central planning by the Chinese government. This behaviour led to smelters being built even when doing so made little economic or environmental sense. A recent article by Forbes (March 2016) states: “China’s government has been subsidizing aluminium smelters through direct grants, interest free loans and other “incentive” mechanisms. Absent this massive support scheme, a significant number of the smelters in China would have been forced to declare bankruptcy. Ironically, Chinese smelters often have above average operating costs compared to smelters located outside of China, primarily because of high energy costs.”
China has excess capacity estimated at 350 - 400 million tonnes. This is more than double total EU steel demand, EU being the second biggest steel market after China (USA steel demand is less than 50% of EU steel demand). China has as a stated objective the elimination of obsolete capacity, aiming for a reduction of around 150 million. However, even if China manages to re-balance its steel capacity - which is easier said than done - it will continue to be a heavily subsidised sector dominated by State Owned Enterprises.
About AEGIS Europe
AEGIS Europe brings together nearly 30 European associations representing a broad variety of industries including traditional industries, consumer branches, SMEs and renewable energy sectors, accounting for more than €500 billion in annual turnover and millions of jobs across the EU. This industry alliance, made up of leaders in sustainable manufacturing and social and environmental responsibility, is committed to European manufacturing as the fundamental driver of innovation, growth and jobs in Europe.