Abstract

Vale is very grateful to the China Development Research Foundation for the opportunity to contribute ideas and suggestions as China embarks on its ambitious supply-side reform agenda, which is serving as an important pillar of its 13th Five Year Plan from 2016-2020.

As an innovative, strategic partner and supplier of the world’s highest quality natural resources to China for the past 44 years, Vale remains ready to explore further opportunities that strengthen our cooperation with China and our Chinese partners in understanding the next phase of China’s ongoing, sustainable development.

The current Global economic situation poses challenges for commodity producers and users
As we begin 2017, the global economy remains in an interesting period of transition and continued uncertainty. Added to the ongoing economic volatility is growing geo-political uncertainty, with upcoming elections in France, Germany, and Italy slated for 2017, as well as questions surrounding the tone and long-term future of the global trading framework and the direction of the new American administration. Many commodities experienced a very pronounced bounce-back from the multi-year lows of 2015 with the prices of iron ore, coal and other commodities surprising the analyst community with average prices that exceeded expectations, particularly in the second half of 2016. 

While global commodity price recoveries are welcome news to many countries, the lack of certainty in the global policy arena, particularly on the global trade front, is a challenge that should not be underestimated. For 2017, the World Bank forecasts global growth within a range of 2.0-3.2% depending on a variety of scenarios.  The World Bank cites growing levels of policy uncertainty, especially regarding trade policy and trade flows, and that the slowdown in global trade has been exacerbated by political developments. The World Bank cites the most notable risks emanating from the United States’ November 2016 election and the United Kingdom’s vote on whether to remain a part of the European Community .

Supply Side reform and its opportunities for key Chinese industries
One of the most important policy developments of 2016 in China was the release of the 13th Five Year Plan and a commitment from Chinese Central leaders, together with Provincial and local entities on ‘supply-side reform’.

The main aspects and targets of the 13th Five Year plan are substantial and include a GDP growth target of 6.5-7.0%, the uplifting of 50-60 million people out of abject poverty, targets for decreasing pollution and emission levels; increasing the urbanization ratio within China to a target of 60% and the development of a more comprehensive social security and health system.   The next five years in China will be historic. The 13th Five Year plan is also the most ‘green’ plan to date - given close to 40% of the performance-based objectives of the 13th Five Year Plan are environmentally related marking incredible progress from previous five year plans. 

In order to accomplish this very ambitious set of targets Chinese leaders also set out an ambitious agenda of supply-side reforms. The Chinese definition and application of supply-side reform differs from those of the UK and the United States. It is critical to understand this difference in definition and its applications in China as the country balances lower growth rates, diverging property markets, handles the complexity of overcapacity in a variety of sectors, reduces pollution while ensuring a healthy job market for a growing middle class and navigating a more challenging external global environment. Vale’s paper explores this in further detail.

Opportunities to improve key inputs to help accomplish five year plan objectives of pollution reduction, greater efficiency of its steel sector and urbanization targets。

In 2015, Vale undertook a comprehensive, technical look at industrial emission levels in China and what contribution higher quality iron ore can bring to help reduce these emission levels as well as some of the overcapacity related challenges.   The end result of this study, captured in Vale’s broader submission, highlights the benefits of having access to low-cost and high-quality iron ore which will help reduce fuel consumption and emissions, as well as slag. This will also simultaneously assist the environmental control aspects of steel production as well as improving efficiency and competitiveness of Chinese companies. 

One of the key aspects – in Vale’s opinion – is to increase product quality and reduce emissions by increasing the amount of higher quality ores and ore blends used in the steel making process as well as further encourage steel usage in residential, commercial and infrastructure construction.

In the broader paper, Vale cites examples and suggestions of how the upgrading of key industrial inputs will benefit China and the supply-side reform agenda. With increased usage of higher-grade raw materials, greater diversification of steel production away from crude steel to higher value-added products, higher usage of steel in domestic residential, commercial and infrastructure building applications as well as a continued focus on improving local productivity – China has many options at its disposal as it continues to rebalance the Iron and Steel industry. This would also contribute to higher productivity and better environmental performance of the macro Chinese economy.

Vale looks forward to continuing its role as an active contributor to China’s long-term competitiveness and continued ‘greening’ of China’s steel industry during this period of economic transformation and supply-side reform - helping to maintain fruitful employment and continued long-term prosperity for China during the 13th Five Year Plan period and beyond.