Melted Down

　

Since the second half of 2015, Liu’s former company has been in tatters. Many of his colleagues are now paid an allowance equal to about half of Liu’s pension payments, and though they remain on the company payroll, they spend their days at home, waiting for official retirement.　

　

Ma Guoqiang, chairman of the Wuhan Iron and Steel (Group) Corp, or Wusteel, Wuhan Iron and Steel Company’s parent firm and China’s first big steel conglomerate,, told media this March that only 30,000 of his company’s workforce of 80,000 would retain job security in the coming years.　

　

400,000 to 500,000 Chinese steelworkers are expected to have their salaries cut and their hours reduced, with many, like Liu’s former colleagues, simply sent home to await developments as the industry struggles with an overcapacity problem. These numbers balloon if workers with informal contracts are taken into account.　

　

China’s steel industry, a pillar of the country’s economy, is facing an unprecedented government clampdown on overcapacity that has coincided with wintry conditions on the domestic and international markets.　

　

The government hopes that efficiencies made by liquidating old capacity will be reinvested into improving the productivity and quality of China’s steelworks, incorporating the industry into a wider program of industrial upgrading.　

　

Excess capacity in the steel industry has become a global problem, meaning neither China’s glutted domestic market nor the international commodities markets can soak up excess supply. However, given the size and prominence of China’s steel sector, an entangled web of conflicting interests begs the question: How will this transition proceed, and, perhaps more importantly, who will feel the most pain?　

　

Feel the Burn Until recently, China’s steelmakers had fared well thanks to strategic positioning in the country’s economy, an ongoing domestic economic boom that began in the 1980s and a robust export market since 2006. Wusteel workers still think fondly back to the 1990s, when they enjoyed a generous welfare package, with perks ranging from free meat and cash bonuses during holidays to two weeks of paid vacation at designated resorts.　

　

Even when production was temporarily suspended in 2010, Wusteel workers were unconcerned. “We just stayed at home when there was nothing to do at that time,” said Wusteel employee Wu Qiang. “For us, whether the company collapsed or not was none of our business, but something management had to think about.” Typically, formally contracted staff in State-owned enterprises (SOEs) have viewed their positions as jobs for life, and, unlike private sector employees, have traditionally never had to worry about being unemployed.　

　

Besides, a government stimulus package in China and similar bailouts of the industry worldwide soon materialized, boosting market demand. At an April 7 meeting of the China Iron and Steel Association (CISA) in Beijing, Liu Zhenjiang, general secretary of the association, recognized that the industry “missed the opportunity” to deal with overcapacity that was presented by the global financial crisis in 2009.　

　

Domestic demand for Chinese steel continued to decline after peaking in 2013.　

　

“While about 50 million tons of steel products went unsold in 2014 and 2015, producers were not ready to halt output,” Liu said. Export became a release valve, soaring by 50.5 percent in 2014 and 20 percent in 2015, flooding world markets with cheap Chinese steel.　

　

Overseas markets soon responded with measures to stem the tide and shore up their domestic industries, and as China’s economic growth slowed, a bleak forecast for the future of China’s steel industry began to emerge.　

　

In 2015, trade investigations into steel imports from China doubled compared to those launched in 2014, according to CISA.　

　

Meanwhile, domestic steel prices in China fell much more sharply than international prices for iron ore, the industry’s core resource.　

　

On China’s stock market, more than half of the 10 listed companies posting the highest losses in 2015 were steelworks. Wuhan Iron and Steel Company topped the list, with total losses in 2015 swallowing more than the company’s total net profits for the preceding six years.　

　

In this context, both the steel industry and policymakers were alerted to the urgency with which the overcapacity issue had to be addressed. In February, China’s State Council set specific goals for how much crude steel production capacity had to be eliminated, following these up in March by announcing a relief package for laid-off workers. Stringent environmental, energy conservation, quality, safety and technical standards were also set, with producers who failed to make the grade shut down.　

　

Wusteel, because of its size, was burdened with a bloated payroll, unpayable debts and below-par productivity, said Zou Jixin, the company’s deputy general manager, in a speech at the International Steel and Minerals Conference held in Wuhan on April 14.　

　

Zou’s assessment reflected the situation for managers across the industry. Liu Zhenjiang urged CISA member companies to double their productivity, admitting that, even if they succeeded, would make them less than half as productive as South Korea’s Pohang or Japan’s Nippon Steel & Sumitomo Metal.　

　

Stay or Go?　

　

China’s steel giants, it seems, have no choice but to slash their workforces and focus on productivity. The biggest question is which personnel should depart, and who should remain to upgrade the production line.　

　

Generally, employees who are five years or fewer away from retirement – women in their late 40s and men in their late 50s – are first on the chopping block. As lifelong steelworkers contracted to State-owned enterprises, these workers have few transferable skills and limited, if any, knowledge of the wider jobs market.　

　

“People our age normally still have to fund their kids’ educations,” Liu Hansheng told NewsChina. “Half my pension [the value of the proposed redundancy package] could only sustain basic daily needs.” Convincing entrenched workers to relocate, even within their own industry, is also proving tricky. Wusteel’s new high-tech facility in Guangxi Zhuang Autonomous Region went into operation in March, and is being hailed as the future of the company. However, there have been few applicants from the Wuhan plant, despite the promise of a doubled salary for successful candidates, as most do not wish to relocate to an unfamiliar region.　

　

Now, worker Cheng Qingsong ends each shift not only exhausted, but also fearful for his own safety, particularly with the hot summer looming. Workers have complained that management was less badly affected by redundancies, while managers raised their own voices in protest at paltry severance packages.

　

Younger, better-educated job seekers see little allure in the steel industry. Liu Hansheng’s daughter works for a private accounting firm, with only one day off a week and no social security. However, her father told our reporter, “My daughter always sniffs at any mention of Wusteel.” Wuhan University of Science and Technology, once the chief source of talent for the steel industry, is now directing students elsewhere. “Graduates from the School of Materials and Metallurgy now would prefer to enter other industries rather than taking their chances in the gloomy steel sector,” a staff member at the school’s graduate employment office told a reporter posing as a student’s parent.　

　

Even for those who choose to follow in their parents’ footsteps, the future is far from bright. Qin Gang, a man in his early 30s, has little confidence in a future in Wusteel.　

　

He even works as an insurance broker in his spare time in case the company’s fortunes take yet another dive.　

　

Beyond hiring challenges, even cutting overcapacity, despite a direct order from the central government, has proven more tricky than initially imagined. Steel prices kept rebounding in China and on the international markets in the first four months of 2016, encouraging Chinese steelworks to once again ratchet up their output. Blast furnaces that had been shut down in the name of reducing overcapacity were even relit. As Sun Jin put it, steelmakers are pointing out one another’s overcapacity while failing to acknowledge or cut their own. Data collected in April by China’s National Bureau of Statistics shows that steelmakers are rapidly expanding, rather than downsizing, their businesses.　

　

Tick Tock Time is running out for China’s steelmakers and their employees, time they are continuing to waste by struggling in their short-term interests while urging others to change. Combined pressures from the market and policymakers are growing. The State-owned Assets Supervision and Administration Commission of the State Council declared on May 6 that there were US$623 billion in outstanding steel bonds as of the end of March, and US$1.3 billion in defaults since 2014. On March 24, Yang Hua, former chairman of Dongbei Special Steel Group, an enterprise owned by the Liaoning provincial government in China’s northeast, was found dead at his home, with a police investigation launched to determine whether or not he had committed suicide.　

　

Four days later, Yang’s company declared its first default, followed by further defaults and a suspension of trading of vast packages of bonds issued by Dongbei Special Steel and several other SOEs in May. Investors and analysts were shocked by this turn of events, as most had expected these SOEs’ bonds to be guaranteed by the government. The failure of central authorities to step in to save them led many to conclude that the government is serious about dealing with overcapacity.　

　

The jobs market is also tightening. According to a survey jointly released on April 19 by the China Institute for Employment Research (CIER), Renmin University of China and recruitment website Zhaopin, job opportunities in sectors affected by overcapacity declined in the first quarter of 2016. The same day, CIER director Zeng Xiangquan gave a press briefing about his field research into the effect of the campaign against overcapacity in the steel and coal sectors.　

　

He urged the government to provide additional support to help displaced SOE staff find jobs, such as building information platforms, while also exhorting SOE workers to abandon their deep-rooted attachment to the “iron rice bowl” of a job for life.　

　

On May 9, Party mouthpiece People’s Daily published an editorial that zombie enterprises would no longer receive fiscal support, and some displaced workers would have to be retrained in new disciplines “to face the market.” Employees of these enterprises, therefore, can no longer afford to be complacent about their own job security.　

　

Local officials have also begun to perceive risk to their political careers if they continue to resist reducing overcapacity. On May 12, Zhao Chenxin, spokesperson of the National Development and Reform Commission, declared at a press conference in Beijing that provincial officials had already signed commitments on specific capacity reduction goals, adding that policies to achieve these goals had been developed at both central and local levels.　

　

Even for the Chinese government, the clock is ticking. Several trade investigations or restrictions were slapped on Chinese steel imports in the US, the EU, Australia and India in the first four months of 2016. In April, the Organization of the Economic Cooperation and Development (OECD) hosted a meeting in Brussels to address the global issue of overcapacity in steel, with most eyes turning towards China as a major contributor to the problem. On May 12, the European Parliament voted against granting China full market economy status within the year, citing the country’s steel overcapacity issue as one item on a list of reasons for the denial given by the European Parliament.　

　

Indeed, few Chinese steel makers are optimistic about their prospects, despite a recent rally in prices. Liu Zhenjiang has urged caution, stressing that supply still outstrips demand on the domestic market, and that exports are very likely to continue to decline.　

　

In May, steel prices on the domestic market once again began to fall.　

　

The longer they delay, the less likely it is that China’s steel manufacturers, once superstars of the country’s industrial economy, will be given any leeway to defend their own interests.