The following article appeared in the May 25, 2011 edition of  the Daily Media Report.

North American pipe producers could soon file new trade cases against countries they believe are skirting international trade laws.

“We are contemplating additional cases against countries that appear to be dumping,” JMC Steel Group CEO Frank Riddick said yesterday during Steel Business Briefing’s Shale Play Tubulars Conference 2011 in Pittsburgh.

While Riddick didn’t elaborate on which countries might be targeted, he and other top pipe executives speaking at the conference were in agreement some material that’s recently arrived in the US appears to have been dumped.

“We’ve seen offerings recently as low as we’re paying for hot-band,” Lakeside Steel CEO Ron Bedard said. “That’s not our price point. We tend to compete more with the domestic folks and fairly traded offshore (suppliers).”

TMK Ipsco CEO Vicki Avril said low-priced Korean pipe has been arriving lately, but it’s nowhere near the volumes and price levels seen in 2008 when Chinese pipe was flooding the market.

“I think as an industry we’ve always seen pressure from imports. The question is, whether they’re being traded unfairly or fairly,” Avril said. “What I consider unfair is when importers bring in product lower than the cost of steel.”

Scott Dorn, GM of tubular marketing for US Steel Tubular Products, said US imports are at the second-highest level since the 1990s, as domestic demand has increased.

“I think the domestic suppliers provide the best solutions for those needs,” Dorn said.

The following article by Maria Guzzo was published yesterday by American Metal Market LLC here.

PITTSBURGH — Ron Bloom, President Obama’s senior counselor for manufacturing policy, is reportedly in the running for a new post that could boost his influence within the administration.

Bloom could be named to a similar, but more powerful, position that would unify multiple government departments touching manufacturing, media reports suggest.

Metals-related organizations say the appointment could be a good one for Bloom and U.S. manufacturing, although some argue that the administration’s stringent greenhouse gas (GHG) and other regulatory initiatives might hurt manufacturing-and thus expanded power for Bloom, a former United Steelworkers union official, wouldn’t be helpful.

David Phelps, president of the American Institute for International Steel, Washington, said Bloom has an impressive résumé.

“I would assume he has a keen eye on all kinds of things related to efficiencies in export promotion and so on,” he said. “How could you argue with the idea of putting someone with his track record in that kind of position? It’s an interesting and exciting possibility.”

Bloom was the architect of the deal between the former LTV Steel Corp. and the USW to create the former International Steel Group Inc. (ISG), according to Phelps.

“It was a brilliant move on the part of the Steelworkers,” he said. “Ron Bloom was part of the brain trust that came up with new pattern labor agreement that effectively saved the integrated steelmakers. That pattern agreement fundamentally changed the competitive position of the integrated steel industry.”

Thomas Danjczek, president of the Steel Manufacturers Association, Washington, said Bloom’s knowledge of both the steel and auto industries should benefit the nation’s competitiveness, although he doesn’t know Bloom’s position on “the administration’s overreaching” in areas like Occupational Safety and Health Administration regulations and the Environmental Protection Agency’s GHG authority.

A new White House-based manufacturing policy post, occupied by Bloom or someone else, could give the U.S. industry more visibility in Washington, Kevin L. Kearns, president of the U.S. Business and Industry Council, said. “But creating the effective manufacturing policy so central to real American economic recovery will require far more than familiar faces in new places,” he added.

The biggest obstacle Kearns sees to a major manufacturing revival remains the administration’s consistent misunderstanding of U.S. manufacturing’s centrality to a healthy, job-creating economy and its reluctance to implement a comprehensive set of pro-domestic manufacturing policies.

“Although paying constant lip service to manufacturing . . . the President and his advisers have done almost nothing to improve the state of domestic manufacturing, the only exception being the rescue of GM and Chrysler,” Kearns said. “There has been no mechanism set up to consult with domestic manufacturing firms on a regular basis and turn their suggestions into policy.”

Obama has said he is committed to a next-generation manufacturing agenda by spurring innovation, investing in workers’ skills and helping U.S. manufacturers prosper in the global marketplace by promoting exports.

Bloom was appointed to his current role in September, prior to which he worked at the USW, as a Wall Street banker and helped restructure GM and Chrysler. Sources said this background will serve him, and the U.S. steel industry, well.

Scott Paul, executive director of the Alliance for American Manufacturing (AAM), Washington, said Bloom has a unique skill set that deserves to be applied more aggressively to revitalizing the manufacturing sector.

“AAM has argued that there needs to be much more attention paid to the challenges facing the manufacturing sector and the need to place greater priority on addressing those challenges if we are to achieve higher growth, job creation and economic equity,” Paul said.

“The fact that the President is considering elevating Bloom’s role in the White House is a good sign the President recognizes how important having a vibrant manufacturing sector is to the health of the overall U.S. economy,” Thomas J. Gibson, president and chief executive officer of the American Iron and Steel Institute (AISI), said. “Ron is a passionate and experienced advocate for U.S. manufacturing. If appointed, it is essential that he has the right resources and support at the highest levels in the administration to achieve success.”

AISI chairman Daniel R. DiMicco, who is also chairman and chief executive officer of steelmaker Nucor Corp., Charlotte, N.C., agreed.

“I believe Ron will be a strong leader for manufacturing if appointed, but to be effective he will need the full support of the President and those he reports directly to,” DiMicco told AMM. “Before he was a Wall Street player or a union leader he was a U.S. manufacturing champion, and that will be his focus.”

The following article by Joe Napsha appeared in the Pittsburgh Tribune-Review here.

Manufacturers need a national agenda that addresses trade, environmental and tax issues so they can compete in the global marketplace, the CEO of U.S. Steel Corp. said Tuesday.

“There is a crisis in U.S. manufacturing … that transcends the current global economic downturn. The crisis is real. It’s not cyclical, it’s not imagined, and it’s not going away on its own,” John Surma said at a World Affairs Council of Pittsburgh event in the Duquesne Club, Downtown.

A pro-manufacturing agenda must be focused on “making American manufacturers more globally competitive and highlights the need for tax policies that are aligned with global competitors (and) initiatives that will reduce trade barriers and open markets for U.S. exports,” Surma told 80 people from businesses and schools.

Almost every industrialized country has a national pro-manufacturing agenda, said Surma, head of Pittsburgh-based U.S. Steel since 2004.

He emphasized that he is not advocating a national manufacturing policy that would involve direct government investment in companies and plants.

But he said the government should not implement laws, such as a proposed cap and trade bill, that harm manufacturers with stringent environmental regulations that would make it more expensive to make steel in the United States. That would drive jobs to countries with looser environmental rules and cost jobs at home, he said.

“What a foolish idea,” Surma remarked.

Surma, a Mt. Lebanon native who heads a company with 45,000 employees in five countries, said manufacturers are not opposed to free trade but want fair trade, according to the rules by which all nations have agreed to abide.

“We cannot compete with countries, and we should not have to,” Surma said.

He singled out China for subsidizing its industries and violating World Trade Organization regulations. China’s manipulation of its currency to keep the yuan artificially low against the dollar has effectively subsidized its exports to the United States by making those products cheaper, he noted.

Steel industry analyst Charles Bradford in New York said the problem with Chinese steel imports might be overstated. Despite China’s steel industry subsidies, about 95 percent of its production stays within its borders, Bradford said.

Trade cases that reduce imports from China will result in Chinese steel products being shipped to other countries at discount prices, thus eliminating a market for U.S. goods. Lower-priced products from other countries still will enter the U.S. market, Bradford added.

“They’re not going to stop making the steel. They will seek other markets, and it ends up dragging down steel prices,” Bradford said. Manufacturing sectors that sought quotas or limits on foreign products in the past — such as steel and autos — “have been substantially worse off.”

The following press release comes from the American Iron and Steel Institute:

US Steel Corporation Chairman And CEO John P. Surma Named To Trade Advisory Committee; Three AISI Leaders Now Serve In Advisory Roles To The Obama Administration

September 20, 2010

American Iron And Steel Institute (Press Release)

Washington, D.C. – John P. Surma, United States Steel Corporation Chairman and CEO, and a past Chairman of the American Iron and Steel Institute (AISI), has been appointed by President Obama to the Advisory Committee for Trade Policy and Negotiations (ACTPN).  Appointed for two years, ACTPN members represent a broad range of key economic sectors and will provide guidance on trade policy issues affecting the nation.

Two AISI leaders also serve in advisory posts to the United States Manufacturing Council, to which they were appointed by U.S. Commerce Secretary Gary Locke, to advise him on matters relating to manufacturing sector competitiveness and government polices and programs that impact U.S. manufacturers.   Nucor Corporation Chairman, President and CEO Daniel R. DiMicco, who also is the Chairman of AISI, and The Timken Company Chairman Ward J. “Tim” Timken, who is a former AISI Chairman, were both appointed to serve on the 24-member advisory council.

“Trade policy is an essential component that will shape our nation’s economic outlook, so we are pleased at John Surma’s appointment by the President to ACTPN,” Thomas J. Gibson, AISI President and CEO said. “John’s business experience and understanding of trade policy’s impact on U.S. competitiveness will make him a valuable source of counsel to the committee.”

“It is also gratifying that Dan DiMicco and Tim Timken were appointed to and are serving on the U.S. Manufacturing Council,” Gibson said, “which indicates the Administration recognizes their valuable expertise toward advancing the competitiveness of America’s manufacturing sector.”

Among other leadership posts, Surma is a member of the board of directors of the American Iron and Steel Institute and previously served as chairman and vice chairman of the organization. He serves as vice chairman of the board of directors of the World Steel Association and held the title of chairman from 2006 through 2007.   Mr. Surma is also a current member of both the National Petroleum Council and The Business Council.  He is also a member of the board of directors and executive committee of the Allegheny Conference on Community Development and serves as the organization’s current chairman.

AISI serves as the voice of the North American steel industry in the public policy arena and advances the case for steel in the marketplace as the preferred material of choice.  AISI also plays a lead role in the development and application of new steels and steelmaking technology.  AISI is comprised of 23 member companies, including integrated and electric furnace steelmakers, and 138 associate and affiliate members who are suppliers to or customers of the steel industry.  AISI’s member companies represent approximately 75 percent of both U.S. and North American steel capacity.  For more news about steel and its applications, view AISI’s Web site at www.steel.org.

This following opinion appeared in Politico on September 15, 2010. Thomas J. Gibson is president and chief executive officer of the American Iron and Steel Institute, whose member companies produce more than 75 percent of the steel made in America.

The United States is facing the worst jobs crisis since the Great Depression. National unemployment sits at an unacceptable 9.6 percent. President Barack Obama has responded by launching a National Export Initiative, which seeks to double U.S. exports over five years — a laudable goal.

But the policies proposed for this initiative are unlikely to achieve this goal. They do not begin to address a fundamental cause of our massive trade deficit and related unemployment: China’s deliberate undervaluation of its currency. This helps Chinese industries — at the expense of competing industries in the United States and around the world.

The United States has lost more than 2.4 million jobs to China in the past decade, according to the Economic Policy Institute. How is China stealing these good-paying jobs? Simple. Beijing uses mercantilist and market-distorting industrial practices, like undervaluing its currency, to give its producers an unfair export advantage over global competitors.

Leading economists now estimate that China’s currency, the yuan, is undervalued by as much as 40 percent — which translates into a significant export subsidy. This sharply undermines U.S. efforts to increase exports and jobs and creates large, chronic trade deficits that are unsustainable.

But while Beijing promotes its industries, Washington has been sitting on the sidelines.

The Treasury Department has already missed two critical opportunities this year to cite China as a currency manipulator, as mandated by law. China promised in June that it would allow its currency to float more freely — but so far the yuan has increased less than 1 percent.

If the Obama administration is not prepared to act, then Congress must help U.S. industries defend against the adverse effects of foreign currency manipulation. Reps. Tim Ryan (D-Ohio) and Tim Murphy (R-Pa.) have introduced bipartisan legislation, the Currency Reform for Fair Trade Act, which would empower the Commerce Department to use existing laws to give U.S. industries a remedy for the injuries caused by currency manipulation.

Sen. Chuck Schumer (D-N.Y.) has introduced similar legislation in the Senate.

Ignoring China’s unfair trade policies does not make this problem disappear. Beijing’s currency manipulation is the government’s single largest subsidy to Chinese manufacturers. Our U.S. manufacturing base, including the steel industry, has taken a significant hit because of this.

Between 2000 and 2009, China’s steel production jumped from 15 percent to 47 percent of the world’s production. Between 2001 and 2008, the United States experienced nearly $1.5 trillion in cumulative manufacturing trade deficits with China. There is no doubt that China’s protectionist policies, like currency manipulation, are promoting Chinese jobs and investment at the expense of U.S. manufacturers.

It is helpful that the House Ways and Means Committee is holding another hearing Wednesday on the currency issue. But it is long past time for this Congress — and this president — to act. It is urgent that Congress now passes the Ryan-Murphy bill and that Obama sign it. No other action could send a stronger message to China that it must change its ways.

Washington cannot continue to sidestep the need to confront Beijing’s damaging trade policies. The administration needs to use every available tool to insist that the government of China correct the fundamental misalignment of the yuan. We can no longer give Beijing a free pass.

U.S. manufacturers can compete with anyone in the world — but we can’t win against foreign governments. We keep hearing about plans to tackle our unemployment problems. Here is an answer that will strengthen our economy: It can level the playing field, so manufacturers increase the products made in America — and not cost the U.S. government a dime.

Revaluing China’s currency could help create at least 1 million U.S. jobs, according to many economists. If Congress is serious about reviving the economy and getting Americans back to work, now is the time to act.

The following op-ed is by Peter Navarro, a business professor at the University of California-Irvine and author of “Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington.”

China’s fourth largest steel producer – the government-owned Anshan – wants to buy a stake in America’s Steel Development Company.  The plan is to build five new mills, with the first adding 120 jobs to one of America’s most economically depressed states, Mississippi.  What could be wrong with that?

There’s plenty wrong says a bipartisan group of 50 Congressmen.  They are demanding an investigation by the Obama Administration on economic and national security grounds.

In fact, the Anshan deal is not an isolated event but part of a broader “go abroad” strategy orchestrated by Chinese industrial policy.  The goal: Acquire foreign companies and/or their technologies, protect and subsidize China’s state-owned “national champions,” then go abroad into foreign markets.

At the heart of the Anshan matter is a much larger ideological struggle between an America committed to free trade and private enterprise and a “beggar thy neighbor” socialist China using a potent array of mercantilist and protectionist weapons to breed national champions in key strategic industries – from autos, computers, and electronics to paper, textiles, and, yes, steel.   The grim reality is that American companies will continue to lose that struggle – and America will run huge trade deficits and suffer from high unemployment rates — until we adopt this Fair Trade Commandment: Do unto China as China is doing to America.

Just what exactly is China doing?  In direct violation of free trade rules, government-owned companies like Anshan benefit from massive illegal export subsidies ranging from highly subsidized land, energy, and capital to lucrative tax breaks.  No wonder America has lost a third of its manufacturing jobs over the last decade.

China’s national champions also fight behind the shield of a grossly undervalued currency.  This artificially cheap yuan thereby heavily subsidizes the exports of companies like Anshan even as it imposes a hefty tax on American imports into China.  Despite this obvious free trade violation, the Obama Administration, with its “talk softly and carry a little stick” diplomacy, refuses to brand China a currency manipulator.

One of China’s deepest mercantilist cuts is its never-ending quest to beg, borrow, steal, or in the case of Anshan, buy into the American market and American technology.  China’s well-documented industrial espionage network is also used to regularly hack into Pentagon computers to steal military technologies.  China also forces any American corporation wishing to produce on Chinese soil to transfer its technology.  Of course, the acquisition of American companies by state-owned enterprises is the most direct way for China to acquire American technology – and then turn around and use it against American industry.

Once this technology and managerial expertise is transferred back to the Chinese mainland, it will be shared by China’s steel companies and used to further penetrate the U.S. and global steel markets. The perverse result: Over time, the Anshan deal will destroy far more American jobs than the 120 jobs it supposedly will initially create.

Yet another reason to reject the Anshan deal relates back to the inherent contradiction between American capitalism and Chinese socialism.  While America’s private corporations seek to maximize profits – and thereby efficiently deploy national resources by the laws of economics — Chinese state-owned enterprises simply want to create jobs and thereby ease any political pressures on the ruling Communist Party.

While job creation is a salutary goal, the perverse result in China has been this beggar thy neighbor cycle: China first invests in a glut of over-capacity.  It then dumps its excess production into world markets at prices well below cost.  While China booms, unemployment rates and trade deficits soar for trading partners like the U.S. and Europe.

China’s steel industry is a poster child for this problem.  Over the last decade, it has grown at warp speed and now commands over 50% of world production.  Because of a massive capacity overhang, Chinese steel producers have engaged in the wholesale dumping of steel products worldwide.  In self-defense, both the U.S. and Europe have slapped tariffs and countervailing duties on Chinese steel imports.

Anshan and China charge the U.S. Congress with politicizing the investment.  Yet, this investment is, by its very nature, political.  By Anshan’s own admission, one of the goals of the proposed Mississippi deal is to evade trade barriers.  If China wants to de-politicize the investment, it should remove all government influence from its state-owned enterprises (or, better yet, privatize them).

It should be clear, however, that if our government gives blanketed approval for the deal, this will reduce any pressure on the Chinese government to end its mercantilist practices.

As a final argument against allowing Anshan to have its way in Mississippi, China’s “Great Walls of Protectionism” also feature a wide array of both tariff and non-tariff barriers that shield its national champions from competition in its domestic market.  The salient fact here is that China would never permit an American company to make the kind of strategic acquisition proposed by Anshan.  Why should we?

The following article appeared in American Metal Market on August 6, 2010.

PITTSBURGH — Eleven U.S. senators are looking to expand the powers of the U.S. Commerce Department in areas such as anti-dumping and countervailing duty investigations, drawing kudos from steel industry players.

Sens. Ron Wyden (D., Ore.) and Olympia Snowe (R., Maine) introduced what is being called the Enforcing Orders and Reducing Circumvention and Evasion Act, or the Enforce Act, which would give Commerce the tools necessary to prevent foreign countries from evading U.S. trade laws.

The legislation points out that exporters from developing countries-in particular China-have been known to mislabel shipments and re-route goods through third-party countries in an attempt to fool customs officials and circumvent U.S. trade laws designed to promote free and fair trade. The senators say the surging amount of imports from these countries is making it more difficult for U.S. Customs officials to identify cheaters and enforce laws.

The new legislation provides them stronger and more effective tools to do so. The Washington-based Committee on Pipe and Tube Imports (CPTI) and its Customs Task Force were among the first to applaud the measure.

“A lot of us in the manufacturing sector and especially those of us in the steel pipe and tube industry recognize that there is a serous problem with customs fraud and duty evasion,” Dave Seeger, CPTI’s chairman and president of John Maneely Co., said. John Maneely includes under its umbrella tube makers Atlas Tube Inc. and Wheatland Tube Co.

“The introduction of the Enforce Act of 2010 is an important first step and sends a strong message that the Congress is committed to enforcement of the trade laws. We applaud Senator Wyden and Senator Snowe on their leadership and look forward to working with them to enact this legislation,” he said.

The senators, along with nine other Senate supporters, sent a letter to the White House urging the Obama administration to do more to combat unfair trade practices. In it, they once again called on Obama to address China’s alleged practice of currency manipulation along with other illegal trade practices.

Wyden, who chairs the International Trade Subcommittee of the Senate Committee on Finance, said the Enforce Act would dramatically improve enforcement of U.S. trade laws.

“If the government is serious about helping American businesses grow and create jobs, it must ensure that U.S. trade laws are enforced and duties are paid,” he said n a statement. “The Enforce Act is going to unleash the resources of the U.S. Department of Commerce to investigate evasion of U.S. trade laws and ensure that the correct trade remedy duties are applied at the border.”

The Enforce Act is designed to combat the evasion of anti-dumping and countervailing duty orders and enforce trade remedy statutes that are already on the boo ks. It would do so by empowering Commerce to investigate evasion of trade remedy laws, establishing a rapid-response timeline by which Commerce and the U.S. Customs Department would respond to allegations of evasion, and improving the safety of imports.

Thomas J. Gibson, president and chief executive officer of the American Iron and Steel Institute, Washington, also applauded the legislation.

“American manufacturers have been continually put at a severe disadvantage due to unfair trade policies practiced abroad,” he said. “The Commerce Department has already missed two critical opportunities this year to cite China as a currency manipulator. If we want to reach the President’s goal of doubling exports in the next five years, we must enforce the rules that already are in place now and adopt stronger policies that will level the international playing field and help restore good-paying American manufacturing jobs.”

In addition to Wyd en and Snowe, Senate supporters who signed the letter to the White House include Sherrod Brown (D., Ohio), Charles Schumer (D., N.Y.), Debbie Stabenow (D., Mich.), Jim Bunning (R., Ky.), Arlen Specter (D., Pa.), Susan Collins (R., Maine), Ben Cardin (D., Md.), Bob Casey (D., Pa.), and Carl Levin (D., Mich.).

Here is yet another piece about Chinese grating found in the Daily Media Report of AISI.

July 27, 2010

Steel Business Briefing

Two US producers are calling for an investigation into potentially hazardous Chinese steel grating. AMICO and Fisher & Ludlow sent letters to the US Occupational Safety and Health Administration (OSHA) and the US Consumer Product Safety Commission (CPSC), alerting them to potential dangers of the Chinese product.

“Chinese producers have admitted that they do not test the steel they use in steel grating, and do not know its chemical and physical properties,” said Alan Price, legal counsel to the two companies. “A failure of this unreliable Chinese steel grating could be catastrophic.”

As Steel Business Briefing has reported, the US Department of Commerce (DOC) found in an unfair trade case investigating Chinese grating imports that Chinese producers have provided unreliable and sometimes false production certifications.

The US-based National Association of Architectural Metal Manufacturers, which sets standards for steel grating, issued an advisory warning to consumers as a result of the DOC’s investigation.

The unfair trade case resulted in antidumping duties of 136-145% and countervailing duties of 62.46%, SBB has reported.

Although it is unlikely that imports from China will continue based on these hefty duties, AMICO and Fisher & Ludlow are now urging an investigation, as the grating is currently being used in a wide range of applications in residential, school, commercial, industrial, recreational, transportation and other sectors.

Some is also still held in inventory, SBB understands.

Steel bearing bars and cross bars are welded together perpendicularly to form steel grating.

The following article appeared in the Daily Media Report of the American Iron and Steel Institute.

July 26, 2010

American Metal Market

PITTSBURGH — U.S. producers of steel gratings are concerned with potential dangers associated with Chinese steel gratings-including allegedly fraudulent reports on the strength of the Chinese product-and are calling for a federal investigation.

The producers have written to the U.S. Occupational Safety and Health Administration (OSHA) and to the U.S. Consumer Product Safety Commission urging an investigation of steel grating now installed and/or held in inventory in the United States.

“The Commerce Department found that (Chinese steel grating producers) were fabricating test reports and did not do any testing on the steel it was using,” said an attorney familiar with a recent countervailing duty case brought by U.S. producers against the Chinese. “They (Chinese producers) admitted (in the trade case) their reports were unreliable and that they were unable to determine the chemical properties of the steel they were u sing.”

Commerce found that the Chinese steel grating producers falsified key documents in the trade case, including mill test certificates verifying the chemical and physical properties of the steel used in grating products. The International Trade Commission voted unanimously in favor of U.S. producers in the trade case.

Anti-dumping margins of 130 percent and countervailing duty margins of 64 percent have been assessed against the Chinese producers, according to orders published Friday in the Federal Register.

Steel grating is used in a variety of load-bearing applications, including manufacturing and factory flooring and walkways, subway and pedestrian walkways, catwalks and fire escape platforms. The letter to OSHA and the Consumer Product Safety Commission said an investigation is necessary because steel grating is used in residential, school, commercial, industrial, transportation and other settings.

“They (Chinese producers) could not verify the chemical and physical properties of the steel,” the attorney said. “That means you don’t know if the steel is strong enough to support a forklift or one person walking on it. That’s dangerous, and that steel is being used or is in inventory in the United States.”

Two U.S. producers, Alabama Metal Industries Corp. (Amico) and Fisher & Ludlow, a subsidiary of Nucor Corp., wrote in the letter that “false certification of steel grating raises grave concern about the integrity of products, equipment and structures that use such grating.”

Alan H. Price, a partner in the Washington law firm of Wiley Rein LLP and counsel to Amico and Fisher & Ludlow, said the Chinese producers admitted they do not test the steel they use in the steel grating and thus do not know its chemical and physical properties. “A failure of this unreliable Chinese steel grating could be catastrophic,” he said. The letter follows a recent warning from the National Association of Architectural Metal Manufacturers (NAAMM), which sets the standards for steel grating. An NAAMM statement advised buyers to “take appropriate measures to verify the grating is manufactured to NAAMM standards.”

The following article by John Pomfret appeared in the Washington Post on July 26, 2010.

PORTO DO ACU, BRAZIL — Here along the golden sands that grace the Atlantic coastline 175 miles north of Rio de Janeiro, China is forging a new economic reality.

Just past a port where workers are building a two-mile-long pier to accommodate huge vessels known as Chinamaxes that will transport iron ore for China’s ravenous steel industry, past berths for tankers to lug oil to Beijing, a city of factories is sprouting on an island almost twice the size of Manhattan. Many of the structures will be built with Chinese investment: a steel mill, a shipyard, an automobile plant, a factory to manufacture oil and gas equipment.
The port project recalls the China of the past decade: a worldwide effort to extract resources for use in the country’s vast manufacturing sector. But the factory city represents something new: an aggressive push to invest in industries overseas to bolster the country’s image and political influence.

Call it “dollar diplomacy,” Chinese-style.

The investments in Brazil reflect China’s “going out” strategy, which seeks to guarantee natural resources for development purposes and to shield the country’s state-owned enterprises from slower growth at home. Flush with more than $2 trillion in foreign exchange reserves, China has directed its state firms to scour the globe for opportunities.

As it does so, China is playing by its own rules, giving its firms an edge over U.S. and other multinational companies bound by internationally mandated restrictions intended to promote fair competition. In addition, Brazil and other developing countries, which once saw China as an ally, are now realizing that Chinese companies are competing on their own turf for resources and market share. And some analysts say the United States has been slow to perceive that China is using investment to build political heft.

In the first half of this year, China’s investment in Brazil topped $20 billion, more than 10 times all of China’s previous investment in the country. That puts China on track to be Brazil’s No. 1 investor for 2010, compared with 29th in 2009. China’s investments are also booming elsewhere — from Peru, where one-third of the minerals sector is in Chinese hands, to Japan, where Chinese mergers and acquisitions quadrupled from 2008 to 2009.

“They do not want to be perceived as just natural-resource eaters,” said Eike Batista, the Brazilian billionaire behind the port project and one of the world’s richest men. “To them, it’s common sense.”

Li Jianqiang, who runs China Shipping’s operations in South America, sees big opportunities. “Brazil used to look to the U.S. and Europe, but then one day they discovered us and they realized how far behind they were. Money talks, and we understand that. If you have money, people respect you, and then you will have political power.”

Chinese firms have bought stakes in Brazil’s electrical grid; they are building steel mills, car plants and a telecommunications infrastructure in that country. Chinese grain companies are negotiating to buy huge tracts — some larger than 600,000 acres — of Brazilian outback to plant soybeans. Chinese firms have the inside track on landing a huge high-speed-rail contract. They want to help realize Brazil’s gargantuan plans — estimated at more than $250 billion — to tap its offshore oil reserves.

The China Development Bank has given Petrobras, Brazil’s main oil producer, $10 billion as a down payment on future business. Starting last year, China became Brazil’s biggest trading partner, replacing the United States.

China has even begun to adopt a gringo swagger that stands in contrast to its old role as the cheerleader for the Third World. For the past several months, it has refused to buy a drop of soy oil from Argentina after that country slapped tariffs on Chinese shoes — although that tiff didn’t stop Beijing from committing $8.5 billion this month to refurbish Argentina’s creaky rail system as long as Argentina buys Chinese trains.

In March, Ecuadoran President Rafael Correa compared China to the worst imperialist corporation after Beijing refused to bend on terms for financing a $1 billion hydroelectric dam. Then he caved in to China’s demands.

” ‘New colonialists’ is how we refer to China now,” said Roberto Giannetti da Fonseca, who represents manufacturers in Latin America’s industrial heartland of Sao Paulo.

China’s ‘special tools’

Roberto Abdeneur was one of the Brazilians who built his country’s relations with China. He was an ambassador to Beijing in the 1980s. But as the relationship deepened, Abdeneur began to see China as more of a challenge to Brazil than an opportunity. As Brazil’s ambassador to the United States four years ago, Abdeneur noticed that the United States, too, was beginning to worry about China, but in a different way.

“In Washington, you are fixated on China’s potential ideological penetration of Latin America or focus on whether China is training this army or that,” Abdeneur said.

Indeed, U.S. analysts have written extensively on China’s support of Venezuela’s military, noted its bolstering of Cuba’s air defense systems and speculated about whether Chinese analysts have replaced Russians at three signals intelligence sites in Cuba. U.S. officials have also expressed concern about Chinese-Brazilian cooperation in satellite and rocket technology.

“But that’s a smoke screen,” Abdeneur said. “The Chinese are playing on a different chessboard. The competition is commercial. You simply cannot compete because of the very special tools China has.”

Among those tools is the way China cuts deals — in Latin America and elsewhere. China is a master at low-ball financing, fashioning loans of billions of dollars at tiny interest rates that can stretch beyond 20 years. Financing, a seemingly arcane matter, can often account for 40 percent of the cost of a project.

This has become a headache for Western competitors, especially members of the 32-nation Organization for Economic Cooperation and Development (OECD), which long ago agreed not to use financing as a competitive tool.

China’s Wuhan Iron and Steel bought a 21 percent stake in one of Batista’s companies for $400 million, using below-market-rate loans provided by China’s state banks. The steel company is also planning a $5 billion investment to build a mill at the Acu port, with Chinese state financing at attractive rates. China’s oil and gas companies are talking with Batista about selling oil rigs and platforms to service Batista’s offshore drilling operation — again with low-interest loans.

“Given the size of the Chinese banks, they have the muscles to support a major expansion of Chinese companies abroad,” said Otávio Lazcano, chief executive of LLX, the firm running the $25 billion port project.

Although U.S. oil and gas technology may be more advanced, the financing terms that China can offer Brazil are almost unbeatable. In some cases, China has handed out billions of dollars at less than 1 percent interest; under OECD rules, the United States must lend at market rates.

“We believe in a level playing field, the marketplace and transparency,” said Fred P. Hochberg, chairman of the Export-Import Bank of the United States. “With China, there’s an absence of the market and an absence of transparency.”

A shift in Brazil

In the early years of this century, Brazilian President Luiz Inácio Lula da Silva embraced China as a brother developing country. China cultivated Brazil, hinting that it might support that country’s dream of becoming a permanent member of the U.N. Security Council and offering what Brazil took to be a counterweight to the United States.

There was talk that Brazil would train Chinese pilots on its aircraft carrier. Pundits proclaimed a new Brasilia-Beijing axis. The pair formed half of the BRICs — the four nations, including Russia and India, that were considered the new leaders of the global economy.

Lula’s government even moved to silence critics of the newfound strategic union, yanking Abdeneur from his post as ambassador to the United States in late 2006 after he criticized what he called Brazil’s “China fantasy” at a meeting of businessmen in Sao Paulo.

But these days, Abdeneur’s warning — that China is more competitor than partner — is gaining traction.

On a recent trip to Africa, where Chinese companies have beaten out Brazilian firms across the continent, Lula tweaked China at almost every stop.

“I have nothing against my Chinese friends,” Lula said in a speech July 8 in the Tanzanian seaport of Dar es Salaam, “but the truth is that sometimes they win a mine contract and they bring all these Chinese to work in a mine, and this doesn’t generate opportunity for work in that country.”

Responding to the challenge posed by China, Brazil has turned to the United States for help in starting its own export-import bank. It has launched dozens of anti-dumping investigations against Chinese firms. Its government is approving mergers faster than any time in the past to compete with Chinese companies. It has invested billions of dollars in government funds to resuscitate its shipbuilding industry, which hadn’t built a big ship in 20 years. In the run-up to a Group of 20 meeting in Toronto in June, Brazil joined with the United States and India to call on China to allow the value of its currency, the yuan, to rise.

“The Chinese were furious,” said Marcel Fortuna Biato, Lula’s foreign policy adviser.

“China is the microcosm for the future of Brazil, all the good and bad. And like the rest of the world, we are trying to fashion a response,” Biato said.