China in 2009 replaced Germany to become the world's largest exporter, with its foreign trade accounting for nearly 10 percent of the world's total.
Steelmakers Struggle
Chinese steelmakers are facing some serious headwinds as costs inflation eats into their profits.
The profit margin of the industry was around 3.5 percent, the lowest among major industries and well below the average ratio of 6 percent for all industrial sectors, said the Ministry of Industry and Information Technology (MIIT).
Iron ore prices are spiraling out of control, putting Chinese steelmakers in a tight spot, said Luo Tiejun, Deputy Director of the Department of Raw Material Industry under the MIIT.
Global miners in 2010 enforced a new quarterly pricing system linked to the spot market. For much of the past decade, the old benchmark system of annual contracts and price negotiations largely capped iron ore prices below volatile spot prices.
In 2010, China's iron ore imports decreased 1.4 percent from a year ago, but the total costs increased 58.4 percent, said the China Iron and Steel Association.
"The monopoly of the 'big three' miners—Vale, BHP Billition and Rio Tinto—have sapped vitality out of China's steel industry," said Luo. "Now it's necessary to seek a more reasonable pricing regime."
But the downturn will become a powerful catalyst for the country to consolidate the highly fragmented industry and boost output of more advanced products, he said.
Efforts to upgrade the industry are already underway. The Jiangsu Shagang Group, for example, in October 2010 inked an agreement with South Korea's Pohang Iron and Steel Co. to build a joint venture in China. The tie-up would give Shagang access to the edge-cutting Finex iron-making technology, which could effectively reduce costs and pollution.
Service Sector Surges
The Purchasing Managers Index (PMI) for the non-manufacturing sector rose to 56.5 percent in December 2010, rebounding from a nine-month low of 53.2 percent in November, said the China Federation of Logistics and Purchasing (CFLP).
The index provides a snapshot of the business climate in the service sector and other non-manufacturing businesses. A reading above 50 percent indicates economic expansion.
Because of the New Year holiday, as well as the upcoming Spring Festival, which falls in early February this year, the consumer service sector, especially the retailing and catering businesses, are bursting with vitality, said Cai Jin, Deputy Director of the CFLP.
Meanwhile, the information service industry is also holding up well, making significant contributions to the PMI growth, he said.
But not every sector was faring well—the readings for hotels and air transport industries were under 50 percent.
Service business buoyancy is a needed boon for China, which is geared up to rebalance the economy to rely more on domestic demands. The tertiary industry now accounts for 42 percent of the Chinese economy, compared with nearly 90 percent in the United States.
In 2011, the government will put in place a series of favorable policies to stimulate modern service sectors, including information technology, e-commerce, and logistics, said Li Yizhong, former MIIT Minister. |