What Should Be Done: China's Slowing Economy Is Affecting Businesses Globally

Quick Summary

China is a major producer of several metals. A significant and recurring argument against China's metal exports is the accusation of government subsidies that artificially lower production costs. This allows Chinese producers to undercut competitors in the global market. Additionally, China's massive steel production capacity has now raised concerns about a global surplus, further pressuring prices and potentially harming other steel-producing nations.

Currently, there's a drop in demand in the Chinese domestic market, and they are exporting their problem to reduce surpluses and maintain profits. This low blow, in turn, is having catastrophic consequences for the import markets. Continue reading till the end to understand the gravity of the situation and learn what businesses should do to stay ahead of these hostile tactics.

China’s Slowing Economy

China's economic engine, once a roaring powerhouse, is undeniably experiencing a slowdown. The breakneck growth rates that defined China's past few decades are becoming a thing of the past. China's Gross Domestic Product (GDP) growth rate has been steadily declining. From a stellar 8.4% in 2021, it dipped to 5.2% in 2023. Moreover, the International Monetary Fund predicts the Chinese economy will slow over the next four years. This represents a significant shift, and forecasts for 2024 predict a further deceleration, with estimates ranging from 4.3% to 4.6%. These numbers, while still positive growth by global standards, reflect a maturing economy facing new challenges.

Several factors are contributing to dampening China's economic momentum. One major concern is the ongoing crisis in the real estate sector, a critical pillar of the Chinese economy. Property investment has plummeted, and major developers are grappling with defaults, creating a ripple effect throughout the financial system. This caused most construction activity, a major consumer of these metals, to drop significantly. This real estate slowdown significantly impacted industries like steel and aluminum. Steel mills faced overcapacity and declining prices. This situation further exacerbated the economic slowdown, creating a vicious cycle.

Furthermore, China's past relied heavily on large-scale infrastructure projects to fuel economic growth. These projects were massive consumers of steel and aluminum. However, the government's focus seems to be evolving towards more targeted infrastructure spending and investments in technological innovation. While some infrastructure development will continue, the sheer volume of steel and iron ore needed might be lower compared to the boom years. The country is aiming to transition its industrial base towards high-tech industries and cleaner energy sources. These sectors typically require less steel and aluminum compared to traditional heavy industries like manufacturing and construction.

China’s History With Dumping

The term "dumping" typically refers to selling a product in a foreign market at a price lower than its fair value in the domestic market. This can harm domestic producers in other countries and distort global markets. China has been accused of dumping steel and aluminum in the past, potentially harming producers in other countries. Today, there is a growing consensus that China dumping metals through exports ss a way to mitigate its diminishing domestic demand for such metals.

Several instances exist where China has been accused of steel and aluminum dumping. Here are a couple of examples:

• 2016: The US Department of Commerce imposed anti-dumping and anti-subsidy duties on corrosion-resistant steel (CORE) from China, alleging China was selling it below market value. This move aimed to protect American steel producers.

• 2017: Countries haven't solely relied on tariffs to address China's metal exports. That is what Canada did, imposed quotas on certain steel imports from China in an attempt to manage import volumes and protect its own steel producers.

• 2021: The European Union (EU) imposed safeguard measures on specific steel products from China to shield its domestic industry from a surge of imports that could potentially cause harm.

• 2023: The US Department of Commerce initiated an anti-dumping investigation into tin-plated steel imports from China. This investigation stemmed from a petition by a US steelmaker alleging China was dumping cheap tin plates in the US market. The US Commerce Department announced the highest preliminary anti-dumping duties imposed on tin mill steel imported from China, at a staggering 122.5%.

Ongoing Probes by Brazil and India

When a country suspects another nation (China) is dumping a product (steel or aluminum) in its market, it can initiate an anti-dumping investigation. These probes investigate whether the alleged price difference is harming domestic producers in the importing country (Brazil or India in this case).

In 2023, Brazil's industry ministry became particularly active in launching anti-dumping probes on various industrial products from China. These products included steel products (metal sheets and pre-painted steel), chemicals, and tires. This surge in probes reflects concerns in Brazil about a potential wave of cheap Chinese imports harming Brazilian manufacturers. A flooded market with inexpensive Chinese goods could lead to lost sales and lower profits for Brazilian producers, potentially weakening the domestic steel and aluminum industries.

India has also initiated anti-dumping probes to address concerns over Chinese imports. A recent example is the investigation launched in 2023 into aluminum foil imports from China. This probe resulted from a complaint filed by domestic aluminum foil producers who claim China is dumping the product at unfairly low prices.

From the above graph taken using Trademo Intel, the trend line representing aluminum foil imports in India from China clearly shows a sharp increase in the number of shipments in 2023. This spike in imports is easy to highlight when transactional shipment data is leveraged to identify such trends.

If the investigations in Brazil and India find such evidence of dumping and determine it's harming domestic industries, these countries can impose anti-dumping duties on specific Chinese products. These duties act essentially as a tax on imported goods, increasing the landed cost of these Chinese products in Brazil and India. This price hike would make these Chinese products less competitive with domestic alternatives, potentially providing some relief to Brazilian and Indian producers.

Probes by Mexico and Vietnam Next?

Earlier highlighted by Vietnamese producers, China is exporting an increasing amount of aluminum and steel into their country. Although no substantial data has been released publicly to prove this, looking at Vietnam’s imports of aluminum and steel from China, a growing trend can be clearly seen on Trademo Intel.

Also, based on current information, Vietnam hasn't launched any high-profile anti-dumping investigations against China in 2023 or early 2024. This might be due to several reasons. Vietnam and China are close trading partners, both being members of the Regional Comprehensive Economic Partnership (RCEP) and Vietnam itself is a developing nation looking to attract foreign investment. Initiating an anti-dumping probe against China could potentially disrupt this economic relationship. Vietnam might address concerns about Chinese imports through other means. Perhaps engaging in discussions with China to negotiate fairer trade practices or implementing safeguard measures to manage import volumes of specific goods are possibilities.

Although Mexico's Ministry of Economy launched an anti-dumping investigation into flat-coated steel imports from China in 2023, there might be a growing issue that is still not addressed. This anti-dumping probe stemmed from a complaint filed by Mexican steelmakers, Ternium México and Tenigal, alleging that China was dumping flat steel in Mexico at significantly lower prices, harming domestic producers. The Mexican investigation aimed to determine if the alleged price difference constituted dumping and whether it caused injury to the Mexican steel industry. This involved gathering data on steel prices in both China and Mexico, production and shipment volumes, and potential job losses in Mexican steel companies.

Unfortunately, unless pointed out by large industry players, these problems are not highlighted, and neither are probes initiated. Even the means to identify such dumping tactics are difficult to achieve unless a supply chain intelligence platform is leveraged. Perhaps because of this, a huge spike in iron and steel imports in forms other than flat or rolled into Mexico from China has gone unnoticed by Mexican producers and the government. This includes scrap, molds, wires, rods, and bars.

When compared against global imports of such goods, Trademo Intel clearly shows the trendline of Chinese shipments rising and settling at an average that is at least five times higher than before the dumping started. A price difference is also noticeable where such shipments from China are 20–25% cheaper than others, mainly from the United States. This will and probably has affected the iron and steel business in Mexico, and it will take months of recurring revenue decline before realization or any action being taken to investigate.

What Should Be Done?

Companies can identify potential dumping practices by China (or any other country) through a combination of monitoring and analysis.

• Track Market Prices: Companies should closely monitor the market prices of the goods they compete with, particularly those originating from China. This involves tracking both domestic and international prices. Significant price discrepancies, especially when Chinese prices are consistently lower than the fair market value in China itself, can be a red flag.

• Compare Prices Across Markets: Companies can compare the prices of Chinese goods in their own market to the prices of those same goods in other markets, including China's domestic market. Significant price differences can suggest potential dumping practices.

• Import Statistics: Companies can analyze import data to track import volumes of specific goods from China. A sudden surge in imports, particularly if accompanied by lower prices, could be a sign of dumping.

• Gathering Evidence: Building a strong case for dumping requires solid evidence. Companies should document their findings meticulously, including price data, import statistics, and any indications of below-cost selling by Chinese companies.

Trademo Intel provides businesses with these advantages, ensuring early signs are discovered, analyzed, documented, and shared. This article relied on information from the platform to substantiate such findings and also identify a potential dumping practice by China currently ongoing yet unidentified in Mexico. By employing these strategies, companies too can become more vigilant in identifying potential dumping practices and take appropriate action to protect their own interests. Get in touch to learn how such trends can be spotted in any industry within minutes, transforming how businesses mitigate such risks today and stay ahead tomorrow.