Whereas US iron and steel import volume continued to fall, its total import volume in the first half of 2002 was 840,000 tons less than that of China. China thus unexpectedly became the world's No.1 iron and steel importer half a year earlier than the time predicted by international authoritative persons.

Figures released by British Financial Times indicate that China's demand for iron and steel in 2002 will possibly reach 187 million tons, or 70 million tons higher than the limited production figure prescribed by the Chinese State Economic and Trade Commission. In fact, China's steel output almost increases by 10 million tons year on year.

Domestic Demand Leads to Rapid Import Increase

According to experts with the IISI (International Iron and Steel Institute), China's output of washing machine, refrigerator, computer and automobile this year will increase 8.8 percent, 31 percent, 300 percent and 23 percent respectively over 2001, while household electric appliances and automobiles need the supplies of auxiliary steel products.

In addition, there has been continuous increase in the use of rolled steel in China's building materials, electromechanical products, ships, machines and other fields. This has constantly set new records on the domestic need for iron and steel.

Other experts say that the large-scale development of the western region (such as west-to-east natural gas pipelining), construction of stadiums and gymnasiums for the Olympic Games and the 10th Five Year Plan all need large quantities of steel products, particularly demand for high-side steel products. Moreover, the country's burgeoning industries, such as real estate project construction, which begins to use large amounts of rolled steel, also lead to the growing need for iron and steel.

Outflow of Foreign Exchange Exceeds US$13 Billion

In the opinion of Huang Jindou, secretary-general of the China Iron and Steel Association, the reasons for the rapid increase in China's import of iron and steel products lie in the US 201 provisions on the self-protection of iron and steel, the cancellation of import license made after China's accession to the WTO, as well as the sharp drop in tariffs on iron and steel products.

Owing to the US 201 provisions effective on March 20, 2002, and the implementation of a three-year tariff quota limit on the importation of 14 kinds of steel products or the increase of tariffs ranging from 8 percent to 30 percent, US import of iron and steel has decreased, and its self-production of these products has increased, whereas China's export has suffered continuous decline.

At the same time, tariffs on China's import of high-side steel products have fallen by 50 percent-70 percent, as a result, steel products from other countries or regions in the world can be sold at low price to China's inland areas. Although lots of imported steel products can be produced by many Chinese factories, such as Baoshan Iron and Steel Complex and Wuhan Iron and Steel Company, domestic importers, however, chose to buy foreign products at lower prices.

After the first six months, for the whole year there will be bigger increase in the import of those steel products which China itself cannot produce, thus boosting import as a whole.

Considering increase in iron and steel import and decrease in their export in 2002 resulted in the price rise of these products, the outflow of China's foreign exchange will possibly top US$13 billion. This figure is equal to the entire investment in China's Three-Gorge Project, as well as to the investment for the mid- and early-phased west-to-east natural gas pipelining project.

Wu Wenzhang, general manager of the Iron and Steel Consultation Center, is of the opinion that trade deficit in iron and steel import is necessary, because without deficit, there would be no trade balance, otherwise, the United States and other developed countries will institute more protective measures.

But I have to make it clear here that neither the American protective measures, nor China's own counter-measures have, from the macro point of view, changed trade deficit in China's iron and steel import and export, on the contrary, the situation of China's iron and steel trade deficit has further deteriorated, while the structural problem in iron and steel enterprises has apparently surfaced.

The major phenomenon appeared alongside the increase in China's iron and steel import and decrease in the export of these products is that the profit rates of China's iron and steel enterprises continue to glide.

Statistics prove that by March 20, 2002, among the 20 companies listed in the annual report published by the iron and steel industry, nine witnessed a slide in the profit-making level, one leveled off and 10 achieved different degrees of growth, but the profit weighting of each share was 0.282 yuan on average, falling by 1 percent from the year 2000.

Huang Jindou said that currently, the profit rate of the iron and steel industry continues to be in a gliding state, dropping 40 percent in the first quarter, 8 percent in the second quarter and is expected to remain equal in August.

Related experts stated that taken into consideration the surge in the price of global steel products, despite the improvement in the quality of China's iron and steel, import of the product, whether decrease or increase in the near term, will exert negative influence on the economy.

( August 8, 2002)