Growth Mechanisms and Sustainability

This chapter reviews previous extant research on postwar state policies in East Asia’s steel industry. The governments of Japan, the Republic of Korea, and China have always attached great importance to the rapid ascent and restructuring of the steel industry. As a strategic sector, the steel industry requires frequent government interventions to obtain a comparative advantage in raw material sources, technology improvement, and trade. In contrast, the overreaching of the government’s involvement has led to market distortions and overcapacity that have worsened with the economic maturity of these three East Asian economies, particularly that of China. The current global steel sustainability is increasingly influenced by excess capacity, low profitability, and environmental issues. As the largest producer, consumer, and exporter in the global steel market, East Asia’s steel industry will play a critical role in addressing these problems and in contributing to the low-carbon transition in response to climate change challenges. This chapter outlines the similarities and differences among the state policies in Japan, the Republic of Korea, and China and discusses how they are associated with the steel industry’s growth and current issues, which might help identify potential development strategies that can lead to a more sustainable development path.

The purpose of this article is to examine the ideal ways in which the intraregional division of labor can overcome the current difficult business environment and strategic challenges to survive in the future. Analysis has shown that the iron and steel industries of the Republic of Korea, Japan, and China have developed through “competition and cooperation” with each other, but various development patterns and supply–demand structures have been created among these countries. Therefore, intraindustry trade and the intraregional division of labor have been formed and developed in Northeast Asia. The Japanese and Korean iron and steel industries have an export-oriented production structure. The high international competitiveness of both countries is caused by a high technological development capability and the optimization of the global value chain. Meanwhile, as the main factor in the international competitiveness of China, many small and medium-sized steel manufacturers have enhanced the productivity of low-priced products by specializing in specific production processes and specific products. However, the steel industry of the three countries has been facing severe trade and competition issues, such as increasing protectionism and trade frictions and a slowdown in global demand. The three countries should strengthen the intraindustry trade and specialization system.

Reducing the emission of carbon dioxide, the greenhouse gas with the largest impact on global warming, has become one of the most urgent issues in the fight against climate change. The industrial sector accounts for the largest amount of carbon dioxide emissions from production activities, with the steel industry accounting for a large proportion of these emissions. On the other hand, the signing ceremony for the RCEP agreement was held, and a new international division of labor is about to be established in East Asia. It is necessary to dynamically reexamine the international division of labor and the trade structure of the steel industry in Japan, China, and the Republic of Korea (ROK). Therefore, this paper analyzes from the perspective of the international division of labor. First, we analyze the intraregional and interregional structures of the international division of labor and the interdependence of intermediate goods in the East Asia region. Next, we analyze the structure of the international division of labor (by sector) and the corresponding interdependence in China, Japan, and the ROK. Furthermore, we analyze the interdependence of the “metal products” industry in China, Japan, and the ROK.

The global prices of raw materials used for steelmaking have been volatile over the past few decades. More recently, extreme weather events have exacerbated this situation, causing an imbalance between supply and demand for raw materials. This study examines the impact of natural disaster shocks on the prices of steelmaking raw materials. Using data on iron ore, which is used in the process of making crude steel, this study explores whether the occurrence of natural disasters causes price fluctuations in the iron ore market. The analysis focuses on contemporaneous and dynamic effects of disasters, considering the persistence of disaster shocks. It is expected that steel manufacturers are adversely affected by disaster shocks through the international trade of raw materials. Moreover, the negative impact of natural disasters may persist longer when affected areas or countries are severely damaged. Since intense natural hazards, such as prolonged floods and devastating storms, will become more likely under climate change, this study shows empirical evidence of risks associated with extreme weather events in steel production.

The history of the steel industry reflects the history of technology transfer. The steel industry is a capital-intensive industry in which manufacturing equipment plays a central role in influencing productivity. The extant literature on technology transfer in capital-intensive industries, including the steel industry, suggests that since production technology and know-how are already embodied in capital equipment, developing countries that import equipment can produce products efficiently with economies of scale. This study insists that the ‘economic backwardness’ of latecomers in the steel industry is limited for two reasons. First, to produce high-grade steel products, interprocess coordination and interorganizational coordination are crucial. Second, since companies that introduce technologies lack knowledge and experience regarding new technologies, their learning process and the effectiveness of technological application are variable. This study explains how companies that introduce complex technologies learn their new technologies in the process of introduction, assess their possible biases and determine the time required for learning and relearning. From the standpoint of the introducing company, this study defines ‘technology recognition,’ ‘recognition lag’ and ‘learning lag.’

Anthropogenic carbon dioxide (CO₂) emissions alarmingly rising up to cause global warming through global greenhouse gas (GHG) emissions. To reach Paris Agreement targets and reduce GHG to net zero by 2050, dramatic action is required from the iron and steel industry. This study aims to explore the changes in CO₂ emissions of Japanese and Chinese manufacturing subsectors from 2008 to 2017 and 2005 to 2017, respectively. Manufacturing sectors of Japan and China are split into two groups: CO₂ emissions from all manufacturing subsectors and manufacturing sectors excluding the iron and steel industry. We decompose CO₂ emissions by separating the scale, composition and technique effects following the novel method of (Levinson (2015) A direct estimate of the technique effect: Changes in the pollution intensity of US manufacturing, 1990–2008. Journal of the Association of Environmental and Resource). Our study postulates, after excluding emissions from the iron and steel industry, composition effect actually increases pollution emissions. Significant reduction in CO₂ emissions is accelerated by innovative improvements to production driven by technology and/or regulations of Japanese and Chinese manufacturing. Different results are observed for all manufacturing subsectors: compositional changes account almost half of emissions reduction for Japan and 18% for China, which are larger than previous studies on environmental problems. This finding suggests iron and steel industry needs to augment its technical potential to reduce CO₂ emissions.

In this chapter, we first construct a comparative statics model and theoretically discuss how raw material supply and price volatility, intercountry trade relations, technological progress and demand for final goods impact the production and trade of intermediate goods and production of final goods through the perspective of the vertical division of labor. Based on a theoretical analysis, we focused on the Chinese steel industry and collated panel data on steel products to demonstrate how various factors (price of iron ore, domestic demand for final goods, technological progress in the steel industry, accession to the WTO and triggering of anti-dumping measures) affect imports from Japan and the ROK and domestic steel product production. We further estimated how these factors impact the production of final goods closely related to steel products in China. First, although the Chinese steel industry’s rapid growth is due to improved steel production technology and the effects of iron ore prices and imports from Japan and the ROK, domestic demand for final goods has the greatest impact. In addition, these factors affect the production of different steel-related final goods differently. From this point of view, China’s steel industry has not only expanded in scale but also undergone significant structural changes.

With the transition from a growth-centered economy to a quality-centered one, China’s steel industry faces a variety of difficult tasks, including eliminating overcapacity, accelerating technological progress and innovation, and enhancing overall competitiveness. To accomplish the task of de-capacity (i.e., the removal of excess capacity), various levels of government in China have introduced a set of policies for controlling the industry’s development. The steel industry has seen progress in its de-capacity efforts: A large amount of excess capacity has been removed, firm performance is improving, and the industry is being forced to undergo transformation and upgrading. The steel industry, however, still faces serious overcapacities. International capacity cooperation is a major approach to de-capacity. China’s steel industry must conduct business in a way that considers the global market and strengthen international cooperation. The industry should focus on improving innovation capacity and use this focus as the driving force for healthy, sustainable development. In summary, in the current situation, firms should adjust production based on demand and supply, and government must ensure the development of good policies regarding capacity adjustments. Only when all parties work together can the industry realize high-quality development.

Using data from Chinese large and medium-sized manufacturing enterprises from 2004 to 2007, this study investigates labor productivity and surplus labor in Chinese iron and steel firms based on a fixed effects model, a random effects model and generalized method of moments (GMM). The main results are summarized as follows: first, both the wage level and labor productivity increase from 2004 to 2007 for both SOEs and non-SOEs, but the size of the increase in both wages and labor productivity is greater for SOEs than for non-SOEs. Second, the results based on the Cobb–Douglas production function and GMM estimates indicate that the elasticity of marginal labor productivity is statistically significant for firms in the private sector but not for firms in the public sector. Third, when we compare wages and marginal labor productivity, we find that, in general, there seems to be no surplus labor in iron and steel firms overall, but surplus labor might remain in both large and small-sized state-owned enterprises, particularly in large state-owned steel firms.

This book summarizes East Asia’s steel industry from its catch-up stage to becoming a world-leading player.