Between April and early September 2012, Chinese Domestic steel prices dropped by almost 20%. With lower input costs, Chinese manufacturers gained a significant advantage in quoting on orders for export, further harming New Zealand’s domestic manufacturing base which has yet to fully recover from the effects of the global financial crisis (GFC).
The downturn in the domestic price for steel in China came as oversupply coincided with a slowdown in their economy, which by any standard is still growing strongly. But prices for domestic steel in China are beginning to rise again with the prospect of some reduction in their input advantage.
The Chinese Government’s National Development and Reform Commission, which is charged with the role of economic planning, has announced a range of new stimulus projects that are estimated to be worth more than CNY 1 trillion (NZ$ 190Billion).
This is approximately a quarter of the stimulus package the Chinese announced in response to the GFC in 2008, and represents their level of concern at slowing growth.
As a small economy, New Zealand manufacturers are impacted by our low level of domestic growth and by the penetration into the domestic market of cheap imports.
For New Zealand manufacturers to have a level playing field, they should also have similar support from Government through demand created by stimulus. But that is not enough; if they are to compete on an equal basis, the stimulus needs to be earmarked for local manufacture. We often hear about trade agreements preventing government from preferentially supporting local manufacturers.
It is hard to believe that any of the NZ$190 Billion the Chinese are spending in their latest stimulus package will be open to tender from New Zealand manufacturers.
So what New Zealand manufacturers are fighting against is an unfairly tilted playing field, and even the All Blacks would find it tough to win on a tilted playing field.