China-Pakistan Economic Corridor: Men of steel up against Chinese imports

Local industry argues that it needs further protection to compete; wants to be a part of the corridor

KARACHI:

The China-Pakistan Economic Corridor (CPEC) has been the centre of attention for several reasons. It is an effort aimed at ending the persistent power crisis in the country. The country will see an investment of $46 billion over the years and is another milestone in the feather for bilateral relations between China and Pakistan.

But, as always, while there would be advocates for, there would be many raising eyebrows at the subject.

The same goes for the country’s steel industry.

As the country looks to swiftly complete major infrastructure projects, the industry fears losing ground to the cheaper Chinese steel, especially if it is imported tax-free under the CPEC.

“We want to compete, but any tax-free import will create an unfair competitive environment,” a top official of a leading steel industry told The Express Tribune.

Everyone would want a share of the slice if the project is as big as the CPEC. The steel industry is no different. It wants to take advantage of the huge Chinese investments but, if one goes by facts, the situation is indeed tricky and fears of local industry are not entirely baseless.

The Chinese are mostly involved in major infrastructure development projects and this is where a lot of steel demand stems from. Pakistan would need at least a few million tons of steel bars to complete its infrastructure projects and this amount might be imported from China.

China, and by far, is the biggest steel producer of the world. It has an excess capacity of around 300 million tons of steel because of the economic slowdown in the country.

Pakistan’s annual steel demand is just around 6.5 million tons, literally a fraction of the 800 million tons of Chinese production. Pakistan imports around 1.5 million tons and almost 70% of it is now comes from China mainly because of its cheap prices.

“Since Pakistani government is in dire need of Chinese investments, we fear it may allow tax-free Chinese steel imports for the projects. If this happens, the government will take away a huge business opportunity from the local industry,” he said.

An important by-product of infrastructure development in any country is growth of local industries that in turn creates a multiplier effect on the economy and has a positive trickledown effect at the grassroot level. “This will not be achieved in Pakistan if tax-free steel imports are allowed,” he added.

Steel industry officials say that Pakistan has seen a rise in imports over the past 12 months – by at least 600,000 tons – mainly due to subsidised and dumped Chinese products. Because of this, the local steel industry wants the government to slap 40% import duty on steel in the upcoming budget.  This follows the government’s decision to already impose 15% regulatory duty on the import of steel, which significantly reduce Chinese steel imports in the last three months.

However, the steel industry wants more.

“It is not just us; a lot of countries have increased import duties on Chinese steel. Perturbed with Chinese steel imports, renowned Indian companies are also demanding their government to slap duty on steel imports in the next budget,” an official of a private steel industry commented while defending the demand of additional 40% duty on steel imports.

The local industry argues that since China provides billions of dollars in subsidies to its steel industry, no country can compete with its industry especially when it has to export its excess steel. They say the only other option that any other country has is to provide a level playing field to its local industry so that it can grow and compete with the imports at the same time.

THE WRITER IS A STAFF CORRESPONDENT

Published in The Express Tribune, May 11^th,  2015.

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