Huge energy subsidies fuel China steel export-study

By Doug Palmer

WASHINGTON, Jan 8 (Reuters) - Massive government energy subsidies have fueled China's transformation into the world's largest producer and exporter of steel, according to a new study released on Tuesday.

"In 2007, energy subsidies to Chinese steel are estimated at approximately $15.7 billion, showing a 3,800 percent increase since 2000," the study prepared for Alliance for American Manufacturing, a U.S. industry group, said.

The report provides new ammunition for U.S. steel companies that complain Chinese government subsidies are responsible for a surge in steel imports from that country. Imports totaled 5.35 million tons in 2006, more than double the 2005 level.

It also could lay the groundwork for a possible case against China at the World Trade Organization for violating world trade rules on subsidies.

"The China steel industry in its current form is the creation of the Chinese government. It has benefited from massive direct and indirect subsidies, many of which violate the WTO's subsidies agreement, China's obligations under its WTO accession agreement, or both," the study said.

The report's author, Usha Haley, a professor of international business at the University of New Haven in Connecticut, said she collected data from Chinese and U.S. government agencies, the International Energy Agency, international investment houses, U.S. industry groups and some individual Chinese companies.

By comparing Chinese and world prices for thermal coal, coking coal, natural gas and electricity, Haley calculated the Chinese steel sector received $27.11 billion in energy subsidies from 2000 through the middle of 2007.

Chinese provincial and local governments are responsible for the bulk of the subsidies because steel mills provide both employment and tax revenues, Haley said.