Market economy status not a bilateral negotiation

The protectionist sentiment and the confrontational approach that have emerged in the European Union are worrying, as well as being regrettable and misleading.

On Friday, the European Commission opened new anti-dumping investigations on steel products originating from China, and the European steel industry organized a demonstration against so-called Chinese dumping in the EU market and the granting of Market Economy Status to China.

Nobody should be under any illusion: overcapacity, including excess capacity in the global steel sector is one of the many challenges we are all faced with. Not only the European steel industry has been hard hit, iron and steel industries in China and many other emerging economies are suffering badly from excessive production and flagging demand.

 

According to some estimates, cutting back the overcapacity in China by 30 percent in those industries with most excess capacity - iron and steel, coal, cement, shipbuilding, aluminum and flat glass - is expected to affect the employment of 3 million workers.

Not to mention that China is also confronted with many other daunting tasks: lifting 70 million people out of poverty, advancing industrialization to transform China into a post-industrial society, rebalancing the economy from investment and net exports to consumption and innovation.

The situation is serious and requires a response.

But what kind of response? Grumble, curse, cut the ground from under other's feet? Retreat into protectionism and be at each other's throats?

If history serves as a guide, these are unwelcome if not irresponsible responses. They may help to give vent to the anger and frustration of some and obtain short-term gains, but they fail to serve the common long-term interests of all.

Obviously the response to the challenges is up to each and every country. I only wish to share what we believe to be the best possible approach and option, and what China has been doing and will continue to do with regard to the issue.

First, digest the problem and not dump it onto other's doorsteps.

The development of the steel industry in China has been mainly to meet its domestic demand, rather than to export products to other countries.

To effectively deal with the overcapacity problems, China has taken tough measures to control new capacity. Painful as it is, China has cut its steel industry capacity by more than 90 million tons over the past few years and its investment in iron and steel assets by 13 percent last year. The growth of Chinese steel production has basically come to a halt.

To continue to address overcapacity in a serious and resolute manner, China has made elimination of overcapacity the top priority for this year and will cut the steel industry capacity by another 100 to 150 million tons.

Second, take the tackling of overcapacity as an opportunity to accelerate economic restructuring.

The Chinese word for "crises" is made up of two characters, crisis and opportunity. Guided by our conventional wisdom that opportunities are embedded in crises and that we must be good at getting to grips with them, China is pushing through essential reforms and restructuring against all the odds.

Being fully aware that much of China's industrial overcapacity is heavily concentrated at the lower end of the value curve, we have taken restructuring of the iron and steel sector as an important part of our endeavor to complete the difficult transition of moving China away from an investment-led economy to a consumer-oriented one.

China is actively restructuring the steel sector by eliminating outmoded capacity, creating exit strategies for "zombie companies" based on market rules, and encouraging promotion of innovation, technology, quality and management to meet production safety, energy consumption and environmental protection standards, and ensure the effective supply of high quality products.

In addition, we have put in place stricter supervision over local authorities to guard against excess production and tendency to protect enterprises with favorable policies.

Third, support the training and relocation of workers for new jobs to minimize the negative impacts of transformation.

Like elsewhere in the world, the pressure of globalization and reform and restructuring has had impacts on Chinese society. Restructuring of the iron and steel sector has given rise to concerns and worries. Yet, there is a common understanding that change for the better involves a price and pain.

This time around, the Chinese government has taken measures to help redundant labor change career paths. Among other things, the central government is setting up a special fund to retrain workers and support local government efforts to reduce overcapacity.

And with rebalancing underway in the Chinese economy and with numerous new industries emerging, it is far easier now to get new and better-paid jobs than it was in the late 1990s when the country's inefficient State-owned industries were reformed.

This should also mean China can rely more on domestic consumption, instead of pouring yet more concrete in a country that has already built too many steel mills and cement plants.

Fourth, stay the course of transformation against the headwinds.

Chinese attitudes to life have been shaped and molded by the country's great intellectual legacy of the past thousands of years, the values associated with Lao Tzu, Confucius and Mozi, including the wisdom that heaven maintains vigor through movement and that people should constantly strive for perfection of the self.

And the many vicissitudes we have gone through have taught us that maintaining the status quo and protecting underperforming sectors is only a temporary adaptation to circumstances rather than a long-term solution.

To be competitive we have to live with the world as it is and when the world changes we must be nimble and seize the opportunities that come with challenging circumstances and swiftly adjust ourselves in a pragmatic and clinical manner.

Undoubtedly, the unfolding new normal and structural transformation may be more painful and prolonged than the economic reforms of the late 1990s, since the restructuring of upstream industries will be more arduous and difficult.

Yet to achieve high-quality, efficient and sustainable growth is not an impossible dream. We are determined to endure the hardships and have the strength, determination and willingness to see its realization.

Fifth, China remains committed to opening-up to achieve international competitiveness and promote win-win cooperation.

In our globalized world, we are interdependent. This is not an option but a reality. Our progress and achievement has also resulted in growing for our global partners, especially our strategic partners.

Given this, we are working closely with our neighbors and the neighbors of our neighbors to establish the Silk Road Economic Belt and 21st Century Maritime Silk Road, which will forge closer economic ties, deepen cooperation and expand development in the Eurasian region, and ultimately create a community of common interests and shared destiny and responsibilities.

We are also expanding opportunities for both China and the EU by increasing market access and leveling the competitive playing field, including through negotiations on and early conclusion of the China-EU Investment Agreement.

We are advancing, as I mentioned before, economic reforms and restructuring, including financial sector opening, that would create a more rapidly growing Chinese market for EU goods and services by moving China toward more home-grown, consumption-led growth.

And we are strengthening cooperation on a range of international economic and financial issues, so that we are better able to work together on common global challenges.

Last but not least, global excess steel capacity calls for global action.

All the countries concerned should step up dialogue and exchanges to seek to resolve their concerns through closer cooperation rather than resorting to trade defense measures, which are not sound remedies.

China stands ready to engage in dialogue and consultation with the EU through platforms including the China-EU Steel Dialogue to resolve their differences and properly manage trade friction.

In this connection, I wish to mention a conversation I had some weeks ago with a European business leader who works with the steel industry.

Contrary to my expectation, he didn't pick a fight with me. Rather, he was very friendly, frank and open-minded. Of the many interesting points he shared with me, three are especially impressive.

One, China represents more of an opportunity than a challenge. For many years Western policymakers and scholars, as well as media pundits and commentators, including those in the EU, have engaged in heated debates on whether the rise of China represents a threat or an opportunity for the current international order. In recent times, talk of it being a threat has regained momentum.

For the EU, China is both a challenge and an opportunity. But in the final analysis, China represents more of an opportunity than a challenge. Putting it in perspective, China's moving from a major exporter of low-value added manufactured goods toward higher-end production and domestic consumption augurs well for the EU.

And it is very important the EU keep in mind there is only one China in the world, it should not miss the opportunities that a transforming China offers.

Two, the EU and China can and should work with each other and not against each other.

The EU and China are neither strategic competitors nor rivals. With long-standing civilizations behind them, both Europe and China set great store by economic development as well as social equity and justice. In areas where the EU and China diverge, both have the wisdom and capability to accommodate and work things out in a mutually beneficial manner. The successful settlement of the solar panel dispute was a case in point.

Three, it is imperative that the EU hold on to its values of openness and inclusiveness. While the concerns and worries of the steel sector can be well appreciated, it is necessary to remind ourselves that to keep the EU's social model and give concrete hope to EU citizens, especially the younger generation, EU countries must reform and change. The same is true for the steel industry. Even if China was not competing in the steel market, there are other competitors with a competitive edge.

Although voices saying this are rarely heard in the media, they are worth listening to and heeding when they are.

Before I conclude, I wish to reiterate one more point. Whether or not it recognizes China's market economy status, the EU and all other members of the WTO are under the obligation to apply the rules of the WTO, namely Section 15 of the Protocol on the Accession of China to the WTO, which sets out Members should stop using the "analogue country method" in anti-dumping investigations against China as of December 11, 2016.

It should be clarified, this is not a bilateral negotiation between China and the EU. This is not about whether or not China is up to the market economy criteria of the EU. This is simply irrelevant. The real issue is about the EU's standing by its values of and commitment to fair trade, multilateralism, and rules-based international order.

We look forward to the EU's clear-cut compliance with its WTO obligations and apply equal terms to China in its calculations of anti-dumping duties.

The author is Head of the Chinese Mission to the EU.