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 slightly reduced. 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 plans to deal with this over-production, heavy industries worldwide, particularly those 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 as the United States in the 20th Century in just two years.

Otherworld markets are accusing China of dumping its capacities into their needs 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 developing its economy. According to Chinese Customs information, steel exports increased 20% in 2015.

Although some industries benefit 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 eight 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 steel production by 150 million tons over the next five 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 trade route is 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 companies importing has increased over the last few years. As various heavy industry suppliers worldwide carefully watch China’s exports increase or decrease, other industries are open to cheaper Chinese exports. As 2016 progresses, world industries all have their eyes on China and how they will reduce their heavy industry exports.