China's problem with India's rise as a steel major

A newspaper in a Communist party-ruled country will not print an article running down a foreign government for its trade action to discourage import of low-priced products harming local manufacturers without official sanction. The target in this case is India and the newspaper pointing an accusing finger is China's Global Times. What is galling about the vitriol against India is that the US and the European Union have been a lot more proactive in building tariff barriers against China's steel exports. The paper complains that New Delhi is using "trade protectionism" to "boost the domestic steel industry". On what basis it finds China as the "primary victim" of "Indian trade investigations" is not clear. Revisions of regular import duty and introduction of safeguard duty and minimum import price here have all been preceded by thorough investigations and review of impact these will have on the users of steel, particularly small and medium industries. In fact, any such trade action unfailingly puts the patience of Indian steelmakers to test.

The newspaper article offers unsolicited advice that "protectionism" might temporarily come to the Indian steel industry's aid as it seeks capacity expansion, but the move will inevitably compromise its "competitiveness in the long run". All that steelmakers here are asking for is a level-playing field that is an antidote to dumping of subsidised steel. Steel Secretary Aruna Sundararajan says: "Six Indian steel companies are among the world's top 20 in terms of productivity and competitiveness." If given level-playing field, these companies will be better placed to generate surpluses to fund expansion. Shockingly, the advice of trade competitiveness comes from a country which hosts at least half of the global steel surplus of 600 million tonnes (mt) and which, in spite of making commitments, is found wanting in shaving capacity.

Although not intended, the article leaves one with the impression that China is piqued by India's ambition to become the world's second largest steel producer by almost trebling capacity to 300 mt in less than a decade. The handle it has used against India is its seeking rapid growth of the steel industry at a time when "steel firms in many parts of the world are experiencing a painful process to cut overcapacity". In the first place, burdened with huge overcapacity in the face of domestic demand fall, China's export of 110 mt in 2015 and 46.28 mt in the first five months of this year, up 4.6 per cent year-on-year, has harmed steelmakers everywhere. For its big exports, China remains one of the two principal reasons for the stress that the world steel industry is experiencing. The other factor is the expected world steel demand decelerating by 0.8 per cent to 1.488 billion tonnes (bt) in 2016. India will need all the steel capacity it is planning to build as it has a massive task ahead to build urban and rural infrastructure and also grow quantities of the metal for an expanding manufacturing sector.

China should know from its own experience and that of Japan and the US that an economy of India's size, which is growing at the fastest rate among all large economies, should ideally be close to self-sufficiency in steel. At 2015-16-end, India's gross domestic product stood at Rs 113.5 trillion ($1.668 trillion). Moreover, being the owner of 25 bt of iron ore reserve largely of high quality, it has natural advantage to become a steel giant. The article has cast doubts about India's capacity to "realise its dream of becoming a global steel-producing colossus". It says India's ambition is rooted in Prime Minister Narendra Modi's programme to make the country the 'world's factory'. It, however, wonders whether the Indian government is "strong enough to promote this grand strategy". In the same vein, it says steel is a highly capital-intensive industry and India being a democracy, the government may be "left with limited power" to raise capital. The article recalled the role played by governments in Japan, South Korea and China in promoting steel industry in initial stages. In India, too, the government had a major role in making the industry here the world's third largest. Even now, it owns nearly 75 per cent of Steel Authority of India and 100 per cent of Vizag Steel. This, however, doesn't find a mention in it. The one positive point that the article, however, makes is that Indian manufacturing sector gaining in strength should not "inevitably lead to confrontation between China" and this country.