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    How China slashed its steel industry long before Trump tried to
    How China slashed its steel industry long before Trump tried to
    BUSINESS

    How China slashed its steel industry long before Trump tried to

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    Photo: Xinhua
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    President Trump's latest steel tariffs target importers such as China. The argument goes that cheap steel hurts American workers. But, as Inkstone's Xinyan Yu explains, China's steel industry is changing far faster than many people know.

    My parents were laid off in 2016.

    They had worked for one of China’s biggest steel companies, the Wuhan Iron and Steel Corporation, for more than 30 years each.

    Their compensation? Less than $5,000.

    They weren’t alone. Along with my parents, 500,000 other workers around China were laid or would be laid off to make space for painful cuts to the steel industry.

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    While Trump is targeting countries like China, what people don’t know is how quickly the country itself is consolidating its steel industry
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    China is the world’s biggest steel producer and exporter, but recently it's been working to address its overcapacity – the ability to produce far more steel than is required.

    It all started in 1954, when experts from the Soviet Union mapped out an area near my hometown of Wuhan to host China’s first major steel company.

    People proudly named the area “Red Steel,” a city within the city built to fuel the economy.

    The production floor at a Wuhan steel factory in 2012.
    The production floor at a Wuhan steel factory in 2012. Photo: Reuters

    When Chairman Mao Zedong started the Great Leap Forward in 1958, a campaign to rapidly industrialize China that would quickly prove disastrous, Wuhan Iron and Steel expanded, with hundreds of thousands brought in from across China to help.

    My grandparents were among them, sent to work for the factory in the 1960s distributing grain and repairing machinery.

    For decades, the business did so well people would refer to their stable jobs as “iron rice bowls” – bowls full of sustenance that would never break.

    Like many families in the Red Steel City, my entire household worked in the steel industry.

    My mother was a welder, my father was a truck driver and my uncles and aunts were doctors and teachers, all for entities affiliated with Wuhan Iron and Steel.  

    When China’s economy slowed after 2008, the people of Wuhan saw it coming. There had been less and less work to do for years. The furnaces were being shut down, and they weren’t getting lit again.

    But China was still making too much steel, and the overproduction was causing global ripples.

    It started dumping its cheap steel on the rest of the world, forcing down prices.

    The move hit steel producers worldwide, costing millions of jobs. China has been cited as the main culprit in the crippling of the global steel industry.

    A worker at a Wuhan steel factory.
    A worker at a Wuhan steel factory. Photo: AP

    This is one of the reasons why Trump has imposed a 25% tariff on most exporters of steel.

    Before this, the US had already implemented other measures to protect its steel industry.

    These included raising tariffs on higher-quality Chinese cold-rolled steel by more than 500%, and investigating accusations that China had been involved in stealing business secrets and unfair trade practices.

    But while Trump is targeting countries like China, what people don’t know is how quickly the country itself is consolidating its steel industry.

    In the Red Steel City, Wuhan Iron and Steel laid off more than 50,000 people in 2016 and cut its steel capacity by almost five million tons.

    Before anyone even realized, the Wuhan government took over the company-owned hospitals, schools, shopping malls and even canteens. 

    The Chinese government compares its streamlining push to “a strongman who has to cut off his wrist,” in order to save his life.

    In 2016, it set a goal to cut national steel production capacity by 100-150 million tons by 2020.

    Although some would argue the number is small compared to the more than 800 million tons of iron and steel China produces annually, it's clear the country realizes it has an acute problem to be tackled.

    Group 5
    The Chinese government compares this consolidation to “a strong man who has to cut off his wrist," in order to save his own life

    “The competition for steel exports was messy, so there were a lot of low-end products in the market,” says Wang Guoqing, director of Beijing’s Lange Steel Information Research Center. “But the scaling down means that firms that survive will upgrade and produce better products.”

    Besides cutting steel overcapacity, China is also signing huge infrastructure deals in Central Asia and Africa, partially to offload its excessive amounts of steel.

    Rosealea Yao, a senior analyst at Gavekal Dragonomics, says she thinks the Trump administration’s new tariffs will have little impact on China.

    “China’s steelmakers are busy going after the domestic market, given the better margins,” says Yao. “Current state policy also does not encourage more steel exports, because making steel generates lots of pollution.”

    Currently, 2.9% of US steel is imported from China, and the US buys a mere 1.6% of China’s steel. The number will only get smaller, given Trump’s hefty tariff.  

    This is not to say China will be unaffected by the move.

    As the US taxes steel, more of China's steel will go to places like Southeast Asia, increasing supply and driving prices down – ultimately also impacting China. 

    Back in the Red Steel City, my hometown has been given a new name.

    It’s now known as the “Didi City,” named after China’s biggest car-hailing app.

    The company, which bought up Uber’s entire China operation in 2016, has hired back almost 10,000 of the workers who had been laid off from Wuhan Iron and Steel.

    Although my family has gone through a tough time, Trump’s tariffs won’t affect them.

    My mother is training to be a maternity nanny, and my father has opened a small car repair business. They’ve left the steel industry, and they’re not looking back.

    Xinyan Yu
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    Xinyan is a senior multimedia producer at Inkstone based in Beijing. Previously, she was a producer at BBC News.
    Xinyan Yu
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    Xinyan is a senior multimedia producer at Inkstone based in Beijing. Previously, she was a producer at BBC News.
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