Donald Trump’s Beijing bashing misses China’s own rust belt upheaval
DONALD Trump, who tears into Chinese economic policies with the subtlety of a chainsaw, has accused the nation of “raping” the U.S. with job-destroying currency and trade policies. China is engaging in “the greatest theft in the history of the world,” according to the presumptive Republican presidential candidate.
Such blustery rhetoric, often directed at China’s massive steel industry, plays well in America’s struggling industrial heartland. Yet it ignores an equally painful economic reality in China, whose own Rust Belt is also in distress. The industrial Northeast is losing jobs in a decelerating economy– with the nation’s steel industry set to lose as many as 500,000 more, Yin Weimin, Human Resources and Social Security Minister, said in February.
Caught in the middle is Ma Chao, who works for Delong Steel Ltd. in Xingtai, a declining, hard-scrabble steel town about 5 hours southwest of Beijing. The city of 7.8 million is home to sand storms that blow in from the Mongolian desert in the spring–and a miasma of polluted air pretty much year-round. His steel-factory wages have dropped about 15 percent during the past two years, even as his shifts increased to ten hours from eight.
Almost all his colleagues aged over 45 years have been fired and he sees no hope for his home town’s steel industry. Ma, 23, says he’s delaying his planned marriage this year because he doesn’t have enough money to sustain himself, let alone his fiancée.
It’s the kind of hardship story that’s been familiar in burnt out steel towns like Gary, Indiana, or Port Talbot in the U.K. for years. Yet, until recently, such tales were rare in China, where the economy boomed with few interruptions from 1980 until 2012. And Western steelworkers have far more of a safety net, in terms of unemployment insurance and retraining programs, to cushion the blow than in China.
Regardless of whether Trump ever makes it to the White House to follow through on his threat to slap tariffs on Chinese exports, the outlook for Xingtai is grim. Its historical ties to steel date back 2,000 years to the Han Dynasty, when it served as one of China’s three major iron smelting centers. Today, it’s ranked by the Ministry of Environmental Protection as one of the worst cities in terms of air quality.
Iron ore production in Xingtai slumped 38.5 percent last year, while output of crude steel fell 3.4 percent and prices of factory products overall plunged 15.5 percent. The city has set a target to cut nearly 5 million tons of steel capacity by 2017.
“There’s no hope here,” says Ma, who joined Delong Steel two years ago thinking he had secured a steady future with good wages after a series of short-term jobs working as a driver and in restaurants. “The reality is so far from my expectations. I need to get out of here and make more money.”
The pain inflicted on steel makers across the globe by the double whammy of overcapacity and slowing demand in the world’s No.2 economy is also inflicting pain at home. Steel mills are being shuttered in places from Xingtai to Tonghua in Jilin province in the northeastern rust belt region. Medium- and large-sized mills that are members of the China Iron & Steel Association swung to a total loss of 64.5 billion yuan ($9.9 billion) last year, and China’s crude steel output fell last year for the first time since 1981, the association said in January.
Hardships in China haven’t registered in a U.S. presidential campaign keyed to the pros and cons of free-trade deals with nations including China. Economists have discounted many of the assertions made in Trump’s China-bashing campaign rhetoric.
“There is little evidence that China’s rise has done net damage to the U.S. economy,” said Alex Wolf, an economist for emerging markets at Standard Life Investments Ltd. in Edinburgh.
China’s cheap labor and subsidies on everything from land, to energy and water have helped companies like Apple Inc. ride to the top of the world in market value on the back of made-in-China products. Millions of Americans have gained from the China-sourced cheap products sold by retailers from Wal-Mart Stores Inc. to Toys R Us.
Within China, Trump is both admired as a strong leader and criticized for his fiery rhetoric. It is “immature” electioneering and doesn’t represent a serious shift in U.S. policy, according to Chen Fengying, a global economics researcher with the Beijing-based China Institute of Contemporary International Relations. China’s state media has so far pulled its punches, taking only the occasional swipe at the billionaire developer.
The Republican standard bearer may be right about one thing, said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. “I hate to agree with him on anything, but in this case I must say that the root problem is with China’s financial system and industrial policy,” he said. “China still invested tens of billions of dollars in the steel industry last year, helped by banks.”
The EU, India and the U.S. are among places that have imposed anti-dumping duties on Chinese steel products. They contend that China has propped up its steelmakers to prevent massive job losses, creating unfair competition in world steel markets, says Rajiv Biswas, Asia-Pacific Chief Economist at IHS Global Insight in Singapore.
China’s excess steel capacity is estimated at roughly 350 million tons and world demand is close to 400 million tons annually, and yet there’s no effective plan from China to address the scale of the problem, said George Magnus, a senior independent economic adviser at UBS Group AG in London.
A rise in steel prices this year may help the industry swing back to profit, says the China Iron & Steel Association. Any short-term boost stands to worsen the overcapacity problem — piling on the longer-term challenges abroad, or at home in cities like Xingtai.
The region received an economic shock in 2014 when the Xingtai Longhai Steel Group Co. was shut down, burdened with debts of 4.3 billion yuan on assets of just 2.9 billion yuan, according to the state-run Beijing News newspaper. The fallout is visible: in a nearby township north of the city, numerous shop houses are closed, a convenience store has no customers, while workers sit around chatting and drinking tea inside a vehicle repair shop on the dusty street.
At one restaurant near the closed steel factory, carpenter Zhang Yongkun, 40, says his income has plunged from about 48,000 yuan a year when the factory was humming to about 10,000 yuan last year. “I used to eat out every night and drink hard liquor,” Zhang said, his face bright red after two bottles of Laoshan beer. “Now I eat at home every night, and only have a good drink once every two weeks.”
Trump’s promises to “make America great again” resonated in the depressed steel town of Johnstown in southwestern Pennsylvania, where he dominated in a Republican presidential primary. In the early post-war era, Johnstown was an industrial powerhouse, churning out the steel that helped build railroads, bridges and skyscrapers across a rapidly growing America. No more.
What Trump’s supporters may not realize is that areas of China may well be on the same trajectory. Ma says he’s looking to a future away from Xingtai, most likely in one of the big cities of Beijing, Shanghai or Guangzhou, or nearby Shijiazhuang. “My future isn’t in the steel industry,” he says. bloomberg.com
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