[LINK] "Say Goodbye to 'Made in China'"

[rfmcdonald]

The Dragon's Tales linked to Adam Minter's Bloomberg View article describing how China is starting to outsource as it becomes rich.

In November, Hebei Iron & Steel Co Ltd, a provincial-owned company and China’s largest steelmaker by production, announced that it was moving 5 million tons of its annual production -- roughly 11 percent of the 45 million tons of steel it makes every year -- to South Africa. According to press reports, it won’t be going abroad alone. By 2023, Hebei Province -- China’s most polluted province -- plans to export 20 million tons of steel, 30 million tons of cement and 10 million weight boxes of glass capacity (a weight box equals roughly 50 kilograms) to points still not named.

At first glance, the export of excess industrial capacity wouldn’t appear to make much business sense. As Bloomberg News noted two weeks ago, Hebei Iron & Steel’s South African mill will be “equivalent to two-thirds of that nation’s output last year, and a third of continental Africa’s.” In other words, it's not clear there's much demand in these new locales for the Chinese steel giant's plentiful wares. Why, then, are they doing it?

[. . .] Hebei may simply be at a loss as to how to scale back businesses that they recognize have become massively bloated. Officials in China’s construction-related industries clearly have too much capacity and too little demand. Back in September, I attended a speech in Beijing where a Vice-President of the China Iron & Steel Association announced that Chinese steel production capacity had grown by 200 million tons since the end of 2012, to reach 1.1 billion tons total. Much of that capacity isn’t used -- China is projected to manufacture around 750 million tons of steel this year.

The effect on domestic Chinese steel prices has been devastating. Consider the price in Shanghai for steel reinforcing bar (rebar), a key component to building everything from subways to residential high-rises: it's fallen twenty-nine percent this year. That drop was largely precipitated by China’s economic slowdown (and the slowest growth rate since 1990).

So where is the steel going in the absence of a strong domestic market? During the first 11 months of 2014, China exported 86 million tons of steel (almost equal to total U.S. production in 2013), up 47 percent over the same period in 2013. But the export market is hardly a sustainable bet in the long-term, especially at a time when the United States and other importing countries are erecting anti-dumping duties on Chinese steel.

For a company looking for growth over the long-term, and significant capital to invest, that really only leaves one choice: go global. In fact, the Chinese government has had a “go global” policy since the 1990s, whereby companies are encouraged to set up subsidiaries abroad, for the purpose of extracting raw materials and energy and -- to a lesser extent -- manufacture. But unlike in the past, when going global had served as a nice long-term goal, today's “going global” strategy has taken on urgency.