New Report Examines Chinese Subsidies

A new economic study detailing the Chinese government's massive subsidies to its steel industry was released this week. The study, sponsored by AISI, the Steel Manufacturer's Association (SMA), the Committee for Pipe and Tube Imports (CPTI) and the Specialty Steel Industry of North America (SSINA), examines how these subsidies have allowed the Chinese steel industry to have an unprecedented growth rate over the past few years. The report, entitled Money for Metal: A Detailed Examination of Chinese Government Subsidies to its Steel Industry, documents more than $50 billion in subsidies granted to Chinese steel producers by the Chinese government.

The study, written by Wiley Rein LLP, expands earlier research through a detailed review of the financial statements of leading Chinese steel producers, including but not limited to Angang, Baosteel, Laiwu, Maanshan, Shougang and Wuhan. The report documents a wide range of government subsidies, including the following:

• US$ 17.3 billion (RMB 130 billion) in preferential loans and directed credit;
• US$ 18.6 billion (RMB 141 billion) in equity infusion and/or debt-to-equity swaps;
• US$ 5 billion (RMB 38.9 billion) in land-use discounts;
• US$ 1.2 billion (RMB 9.47 billion) in government-mandated mergers; and
• US$ 258 million (RMB 2 billion) in direct cash grants.

"The result of these massive subsidies is that China's government-controlled steel production is distorting the world marketplace, and the problem is only getting worse," said Andrew G. Sharkey, III, president and CEO of AISI, during an audio press briefing about the report.

The report states that between 2000 and 2005 government subsidies allowed China's steel production to increase by more than 170 percent and an additional 20 percent in 2006 alone. Subsidies also helped China become the largest single steel exporting country by volume in 2006.

"China's massive subsidies and pervasive government control of its steel industry are unprecedented and violate WTO rules," said Alan Price, partner at Wiley Rein LLP and one of the study's authors. "Eight of the ten largest Chinese steel groups are 100 percent controlled by the Chinese government, and more than 90 percent of the production of China's top 20 steel groups is state-controlled."

The $52 billion documented subsidies discussed in Money for Metal are only a fraction of the subsidies that actually exist, due to the limited number of Chinese steel companies reviewed and the partial nature of the data that even those companies report. To read the entire report, visit www.steel.org. For more information, contact Barry Solarz.