Global game of Chinese government..Tayfun Sentürk-Trading Manager of Diler Dis Ticaret AS

The Chinese government's imposition of new export-limiting tariffs on many products - just after the annulment of the export rebates - caused confusion among many importers and even among the Chinese mills. In fact, in order to gain a greater understanding of the situation, we need to analyze comprehensively what the Beijing government is trying to do in this centralized and authoritarian country.

As we are all aware, the Beijing government has long been taking steps in favor of mergers of Chinese mills in order to enable them to become the price determiners in world raw material purchases. However, such desires and efforts seem to have been unsuccessful so far. Now, let's try to understand why the Chinese government is following its current course of action and which steps may be taken in the future.

The Beijing government is certainly not overly interested in the country's 30 million tons of steel exports, which are dwarfed by national production levels exceeding 400 million tons. The government is even uncomfortable with these export levels - the gains from which are very low compared to the losses they cause, since the robust prices in the global market are an excuse for the Chinese mills to keep their prices on a continuously increasing trend in the domestic market. This, of course, means more money coming out of Chinese people's pockets and increased weakness of the mills in their negotiations for raw material purchases. The only essential focus of interest for the Beijing government is its aim to rebuild China from tip to toe, and to do it at the lowest possible cost. If the revenues from exports are simply being spent on raw material costs, this is obviously not to the liking of the Chinese government.

So, what will happen next?

First of all, if steel exports do not fall, then the tax rates will increase further. The prices in the Chinese domestic market will begin to fall and this will be reflected in the raw material markets. As a result, a global price decline may also be experienced.

It seems certain that the Chinese government will buy a major iron ore and coal operating company. The Beijing government will try to halt the concentration of its industry on the coast line and revive the northern/northeastern regions with strong incentives. The reasons for this are many but, briefly, it will enable the use of Kazakh and Russian energy and, with the new railways to be constructed, will allow consumption and production centers to reach from the northern line of the Chinese trade road to Central Europe. This will mean the resurrection of the Silk Road which has been moribund for centuries. And marine trade, also known as the Spice Road, will comparatively become less strong in China. As a final move, China will reach the untouched ore deposits in Mongolia before the West does, begin to operate them and thus become a global price determiner with a wide trade, energy, and raw material network.

From this stage onwards, the steel industry will enter into a new era, where the main axis will become China. However, in the short term, China will not have a strong presence in the international markets where only its shadow will be felt. If no reduction is seen in global prices, then new attempts by the Chinese government may be seen. One should not forget that the Chinese government's ambition is not to sell rebar or flat rolled steel to the world. It seeks instead to build up the country, to construct the lowest-cost skyscrapers, and to see Chinese-origin cars, refrigerators and household appliances in the global markets; and steel is seen as the sine qua non for the achievement of these aims. This is what the government wants but it faces the resistance of local mills who seek to make a profit and are not interested in anything else. This clash between the central authority's long term strategy and the independent mills' quest for capital in the world market has recurred frequently. For the time being, the Beijing government seems to have gained the advantage. We have to see what will happen next.