In a new report on China’s compliance with its WTO obligations, the U.S. Trade Representative (USTR) highlights a number of shortcomings, including industrial overcapacity and the prominence of state-owned enterprises (SOEs).  The report emphasizes that “excess capacity in China . . . hurts U.S. industries and workers not only because of direct exports from China to the United States, but because lower global prices and a glut of supply make it difficult for even the most competitive producers to remain viable.”  The report highlights the Chinese government’s role in sustaining overcapacity in multiple industries, as well as its failure to address the problem despite commitments to do so:

  • “Chinese government actions and financial support in manufacturing industries like steel and aluminum have contributed to massive excess capacity in China, with the resulting overproduction distorting global markets and hurting U.S. producers and workers in both the United States and third-country markets such as Canada and Mexico . . . .”
  • “China has no comparative advantage with regard to the energy and raw material inputs that make up the majority of costs for steelmaking, yet China’s capacity has continued to grow and is estimated to have exceeded 1.16 billion metric tons in 2016 . . . .”
  • In the aluminum industry, “Large new facilities are being built with government support, including through energy subsidies, as China’s primary aluminum production accounted for 54 percent of global production from January through October 2016. As a consequence, China’s aluminum excess capacity is contributing to a severe decline in global aluminum prices, harming U.S. plants and workers.”

In another area of concern that is related to the overcapacity problem, USTR noted that a Chinese 2013 plan for SOE reform “has not yet led to significant reform of state-owned enterprises” and that “China has rebuffed U.S. requests” for “intensive dialogue with China on state-owned enterprise governance issues . . . .”

The complete 2016 Report on China’s WTO Compliance is available via USTR’s website, here.