Even though China has had a rampant growth in steel outputs, as indicated in one of my previous posts, many of its loss-making steel mills could “shut their doors this year.” Many of smaller mills have been “dodging policies aimed at solving perennial problems of pollution and overcapacity” to stay afloat. However, with many new and more stringent environmental enforcement actions coupled with a current excess of roughly 300 million tons and prices “near 20-year lows” these companies could end up either laying off workers or even shut down completely.
The government does plan on attempting to help these mills/companies, who are already
facing losses, “find a way out.” This is a difficult process however because if these companies do, in fact, shut down then that will cause a high turn in unemployment rates, which could be detrimental to the local communities and their economies.
With these high and sudden unemployment changes in different sections of China, we might see even more of a growth in migration of workers since there will be fewer opportunities in their current locations. We could also see a different shift because of the possibility of these (to-be) shut down mills employing a lot of migrant workers them selves.
It will be interesting to see how the government handles this situation and the ramifications and ripple effect it has on migrant workers and the economy as a whole.
As I addressed in a couple of posts on China’s declining growth rate, it is clear that China’s economy is undergoing a restructuring geared toward services. As the shut-down of these steel mills illustrates, China is shifting away from manufacturing a toward services (a trend seen in many developing economies). In his speech to the Chinese parliament, Li Keqiang addressed necessary reforms in order to cope with China’s declining growth rate and maintain sustainable growth going forward.
Yes, that is a good point. This seems to be the front end of these reforms, and will be interesting to see what else they plan on downgrading. If all of these jobs are being lost and the shift is towards services, what sorts of jobs and businesses will be taking all of these thousands of workers? Do you think there would also be a lag time of having to train a new workforce in this new industry?
It is true that as the economy moves toward services jobs will likely be lost; however, as I cite in one of my previous posts Felipe et al. suggest that this decrease will only be driving the growth rate in China down to the natural growth rate of around 7%. Also, if the Chinese economy shifts from investment to household consumption with increasing urban incomes, this increased consumption should generate jobs in the services sector to offset the decreases seen in investment. Whether or not this will happen remains to be seen.
Steel is a “sexy” sector that attracted a lot of players. “My [son/daughter] the steel magnate” rings a lot better than “My [son/daughter] the lingerie executive”. It also was commensurate with both the central planning replicate and replicate some more model, and with the deliberate attempt to disburse production in the name of national security (which also had a political patronage component). In other words, there are a lot of incumbent producers in the industry. Well, a long time ago Andrew Carnegie worked on that problem in the US. Things are a different scale today, but as per previous posts on excess capacity and on “dumping” these old steel mills need to go.
Ok that makes a lot more sense. So basically the individuals might be worse off for the short term but in the long run this is quite beneficial.
Professor Smitka, so in the US, it was one man and his massive company that caused this change to occur and the steel industry to dwindle down to a few big competitors? Where as in China it is the job of the government. I understand that this is the governments power and job in China since so of these steel businesses/mills are government run, but Carnegie really had that much power?
I’m not sure consolidation is the job of the government … rather the central government can push regional governments to cut subsidies.
In the US it wasn’t just Carnegie: we had US Steel and Bethlehem Steel and others.
A decline in steel production might signal the economy is transitioning away from an investment driven economy. Even if it is signalling real economic troubles, at least the supply of the economy is finally equilibrating with demand.