World Economic News: China's Heavy Industry Overcapacity

Although China’s real estate industry has slowed considerably in the last few years, its heavy industry production has seen a little reduction. The result of this slow growth yet continued over-production has worldwide impacts. The European Union Chamber of Commerce recently reported that this “completely untethered” overcapacity has “far-reaching” effects on the world. Although Beijing has laid out plans on dealing with this over-production, heavy industries worldwide, particularly those located in Asian and European countries, continue to raise concerns. For example, according to the European Chamber, Asia manufactures more steel than the next four largest producers (Japan, India, the United States of America, and Russia). The Chamber further reported that Asia produced the same amount of cement that the United States produced in the whole 20th Century in just two years.

Otherworld markets are accusing China of dumping its capacities into their markets and damaging local heavy industries. As Internal growth has slowed, China has been forced to look elsewhere to distribute the oversupply. By exporting heavy materials, China hopes to continue producing such materials to aid in the assistance of the development of its economy. According to Chinese Customs information, steel exports increased 20% in 2015. Although some industries are benefiting from China’s increased exports of low-priced heavy industrial products, other industries worldwide blame this overcapacity for their losses. One of the world’s leaders in the steel industry, ArcelorMittal (Luxembourg-based steelmaker), blames China’s overcapacity for its 8 billion-dollar losses and resulting layoffs they suffered in 2015.

However, Chinese leaders have promised and plan to deal with these over-production issues. Beijing has announced that it will cut the production of steel by 150 million tons over the next 5 years. President Xi Jinping has further plans for soaking up this overproduction by selling to Central Asia and the Middle East using the “One Belt Road Plan” he is developing. (This type of trade route is basically a resurrection of the ancient Silk Road trade routes.) Will these measures be enough? Some countries are skeptical as to whether these measures will be sufficient. While some are losing, opportunities for others are born. China is the number one exporter of various products around the world.

Their large population coupled with an increasingly well-educated workforce creates a market of manufacturers and suppliers who can produce high-quality products quickly and efficiently. Worldwide, the number of businesses realizing these opportunities is growing as the number of businesses importing has increased over the last few years. As various heavy industry suppliers in the world carefully watch China’s export increases or decrease, other industries are open to the idea of cheaper Chinese exports. As 2016 continues to progress, world industries all have their eyes on China and how they will be reducing their heavy industry exports.