Daily Times

China is doubling down on efforts to keep unprofitable factories afloat despite for years pledging to curb excess capacity, adding to a glut of basic materials flooding the global economy.

The country’s overproduction of steel, aluminum, diesel and other industrial goods has driven down prices and crippled competitors, leading to thousands of lost jobs in the U.S. and elsewhere.

China’s continuing aid for unneeded factories is triggering a sharp rise in trade disputes and protectionist sentiment, especially in the US, where trade has emerged as one of the pivotal issues in the US presidential election.

According to a Wall Street Journal analysis of Chinese public companies, Chinese government support includes billions of dollars in cash assistance, subsidized electricity and other benefits to companies. Recipients include steelmakers, coal miners, solar-panel manufacturers, and other producers of other goods including copper and chemicals.

One beneficiary, Aluminum Corp. o f China, or Chalco, said in October one of its units would shut down a roughly 500,000-ton-per-year smelter in the far-western Gansu region as it struggled to make profits. Executives prepped for thousands of layoffs. Then Gansu officials slashed the plant’s electricity bill by 30%, employees say, and the factory was saved. Although a portion of capacity was taken offline, most is operational.

“We’re in full production now with 380,000 tons of capacity,” said Fei Zhongchang, a company sales manager. Chalco’s press office and local government officials didn’t respond to requests for further comment.

In Europe, workers have joined protests against Chinese steel imports. Australia has investigated dumping of products including solar panels and steel and India has raised import taxes on steel after a surge of cheap Chinese goods.

The US launched seven new investigations into alleged dumping or government subsidies involving Chinese goods in the first three months of this year, more than the same period of any other year dating back to at least 2003, government data show. Earlier this year, the US Commerce Department slapped preliminary import duties of 266% on imported Chinese cold-rolled steel. The decision came after US Steel Corp. lost $1.5 billion last year, closed its last blast furnace in the South and laid off thousands of workers, blaming China.

Late last month , US Steel filed a trade complaint against China at the International Trade Commission, alleging price fixing, trans-shipment via third countries to avoid duties and cyber-espionage to loot technology off US Steel computers. China’s Commerce Ministry has urged US authorities to reject the complaint, and said allegations of intellectual property infringement “are completely without factual basis.”

China says it isn’t guilty of dumping-or selling a product at a loss in order to gain market share-and calls US and EU measures and investigations forms of protectionism. It says it has mothballed factories and intends to cut more, with plans to lay off up to 1.8 million steel and coal workers. Officials say it is natural for complaints against China to increase as the country takes on a large share of global trade.

“As the largest trader in goods, it’s quite understandable for us to have so many” complaints, China’s Commerce Minister Gao Hucheng said recently. “We need to take it as it comes and live with it.”

One way of tracking China’s support is by looking at subsidies reported in corporate filings on the country’s two main stock exchanges in Shanghai and Shenzhen.

According to a Journal analysis of nearly 3,000 domestic-listed Chinese companies in 2015, reported government aid rose to more than 119 billion yuan, or more than $18 billion, last year compared with about 92 billion yuan in 2014.

Reported subsidies have risen roughly 50% since 2013, based on figures from Shanghai data provider Wind Information Co. Under Chinese accounting standards, such aid can be cash or other perks like subsidized power or land, but doesn’t include some other support, such as capital injections from the government as an equity shareholder.

Recipients include an ethanol producer that said it was promised as much as 40 million yuan ($6.1 million) in subsidies in the first three months this year because of “grave operating circumstances.”

A producer of titanium dioxide-which is used in products such as paint and sunscreen-won about 28 million yuan ($4.3 million) in cash assistance as it seeks to expand in the North America and elsewhere.

Another company, Yunnan Aluminium Co. , obtained nearly 500 million yuan ($77 million) in subsidies since late 2015, securities filings show. In the first half of 2015, the company says its production of alumina-the starting material for smelting aluminum metal-jumped 40%, even as revenue sank amid weakening prices.

Company representatives didn’t respond to requests for comment. An official at the provincial Department of Finance, which administered much of the cash aid, said it acted to protect Yunnan Aluminium’s 10,000 jobs.

“The government’s aim is to help maintain social stability,” the official said. Other countries, including the US, offer substantial support for struggling industries.

Experts cite differences in China, which they say is less open about its use of subsidies and more inclined to use them to promote exports. China has repeatedly said it would shutter unneeded factories, without following through.

The need for capacity cuts in China has long been apparent. More than 40% of its major steel companies were losing money in the first half of 2015, according to the China Iron and Steel Association.

China’s Ministry of Industry and Information Technology, which oversees the steel industry, told the Journal in 2014 that authorities were already “in the process of implementing” capacity reductions.

Since then, Chinese crude steel production has fallen 2% year-on-year in 2015 to about 804 million metric tons. But industry experts in China, the US and Europe say a further 200 million metric tons of capacity-or about 25% of China’s production-needs to be cut to restore market balance. China’s steel exports jumped around 20% last year to 112 million metric tons, according to customs data. Courtesy – The Wall Street Journal