Posted June 17, 2021
By Byron King
Looking at China Through a Lens of Steel
I saw an eye-grabbing graph the other day. And without further suspense, here it is:
Courtesy Niccolo Conte, Visual Capitalist1
The chart depicts world steel output over the past 50 years. It’s based on data from the World Steel Association. And look at that big, red wedge on the right representing Chinese steel.
There’s much to say about this chart. In fact, it’s fair to say that it helps to explain much of the whole world.
This chart reflects what you see when you walk into a Walmart or Home Depot, or when you buy a car, or whether the stock market goes up or down.
We can explain many other current events too just by digging into this chart.
Let’s have at it…
Or perhaps I should say China-China-China. Because this chart lays out the Chinese economy in a nutshell, as well as much of the story of global trade. Chinese steel alone explains why so much else in the world seems to be so China-dominated.
Of course, the chart offers insight into the rest of the world too. In essence, we see China rising, while other nations and entire regions followed other arcs of development.
Steel explains how China has expanded like gangbusters. You can begin to understand why Chinese businesses are everywhere. Or why China is creating wealth across the globe. Or why (and certainly how) China built a huge navy.
China has gone through a civilizational — and meteoric — rise in recent decades. And much of it was fueled by steel furnaces.
Obviously, the chart above shows a massive expansion in Chinese steel output. The country’s steel industry was small-scale in the 1960s, verging on negligible in the context of the rest of the world.
Chinese steel output eclipsed that of the U.S. in 1993. China outpaced Japan in steel back in 1996. By 2000 China was a steel powerhouse. And after 2000 you can see two decades of utterly explosive growth.
In 2009, as the world melted down in financial collapse, Chinese steel output was up again by an impressive 13%. Then by 2017 China produced more steel than the rest of the world combined.
And last year as the world locked down due to Covid, Chinese steel output grew by 5%.
None of this is by accident.
No, this steel blowout was the work of the Chinese Communist Party (CCP) which prioritized the metal as a critical national industry within a centrally planned economy. (More on that in a moment.)
Now in 2021 China is on track to produce more than one billion tonnes of steel. That’s 10 times more steel than India. Or about 14 times more steel than either the U.S. or Russia.
Let’s visualize what that means. In 2020 the entire U.S. steel industry produced just under 73 million tonnes of product. And according to a knowledgeable acquaintance who tracks these things, China’s shipbuilding industry alone, with its vast array of yards turning out commercial and naval construction, uses more steel every year than the entire steel output of the U.S.
All puns aside, let that sink in: More. Chinese. Steel. Just. In. Ships. Than. Entire. U.S. Output.
Whoa… Clearly, China’s mighty level of steelmaking speaks volumes about the breadth and depth of Chinese industry, as well as the degraded state of the U.S. economy as a system — as a means to make and sell actual, tangible things.
Oh sure, the U.S. can brag about its vaunted service economy, which was wrecked last year by Covid lockdowns. Meanwhile, all that Chinese steel is why China has gleaming new cities, roads, bridges, rail systems, ports and ships, an auto industry that dwarfs the U.S. and many other industries that supply the world with everything from dishwashers to air conditioners.
In fact, when you walk the aisles of Walmart, Target, Home Depot and countless other big box stores in the U.S. (and Europe, and most other nations too), you’re looking straight at Chinese steel in many products, from hammers and nails to microwave ovens.
Now, before we get too far along, let’s use the gigantic state of Chinese steelmaking to illustrate how far China has come from Mao Zedong’s so-called “Great leap Forward” which began in 1958.
In the late 1950s, China was a backwards nation, if not an economic wreck. That’s what 150 years of invasion, war, revolution, more war and political tumult will do to a place.
Chairman Mao determined that China had to industrialize — and rapidly. He laid out the “Second Five Year Plan” which directed, among other things, that China become a steelmaking power.
Keep in mind that Mao had no particular knowledge of metallurgy or steelmaking. Undeterred he simply decreed policy. And per Mao, communes across China began making steel.
In a manner that only happens in a place like China, tens of thousands of small, backyard facilities rapidly sprang up across the landscape.
Chinese backyard furnaces, circa 1959.2
Directing something is not the same as doing it, however. And within a year, Mao’s steelmaking plan evolved into an epic national disaster.
Following Mao’s decree, the CCP mobilized millions of poorly educated peasants, who in turn built a landscape of glorified melting pots. Most of the technology was barely out of the early Iron Age, with simple clay and brick furnaces fueled by charcoal from trees stripped from every forest and field.
Mao’s army of peasant steelmakers tossed everything that might melt into the mix. There was little allowance for alloying. Often as not, raw materials included pots and pans, old vehicle parts, old pipe, door hinges and more. If something seemed ferrous, it went into the mix.
Then out came lumps of low-grade, metallic crud, in most instances not even decent pig iron. Mao’s do-it-yourselfers came nowhere near making any significant quantities of decent steel.
Meanwhile, millions of laborers gave up farm work for metal casting. This negatively impacted food production all across China and helped create a famine.
Eventually, Mao accepted reality. That is, high quality steel requires more than backyard furnaces. Steelmaking requires sophisticated, large-scale factories that use reliable, high quality fuels such as metallurgical coal.
And then, as the 1960s played out, came China’s Cultural Revolution.
The Great leap Forward was a Chinese civil war (2.0) against what adherents called the “four olds.” Against old things, old ideas, old customs and old habits.
Crazed Red Guards ran riot across the land. China endured political purges of historic scale, a story in itself. And in consequence China remained a backwards, hungry nation.
But the good news for China is that nobody lives forever, including Mao. He died in 1976 and with him went many of his crackpot ideas about how to run (and mismanage) an economy.
Post-Mao came Chinese technocrats who purged Mao’s kookiest acolytes and (more importantly) tore out his dumb economic ideas, root and branch.
Through it all, the CCP remained in charge. And of course ,it still runs the place with a tight, vice-like grip that has grown more and more powerful over time.
Pragmatism took hold, and since the late 1970s the CCP has granted scientist and engineers a key voice in how China works.
One angle to this is China’s nationwide focus on education in math, science, engineering and other industrial arts. Stated another way, there are no gender studies majors at Chinese universities. It’s all part of the CCP drive to create a nation filled with capable, useful people who can “build China,” as the saying goes.
This political focus on economic development is well-reflected in China’s fast-growing steel industry.
Begin with the idea that steelmaking is not just equipment and resources; it’s people too.
In America today, for example, about 140,000 people work in the primary steelmaking sector. In China, that number is well over 100 times greater, meaning 14 million and more.
In America today, the steel sector operates a wide variety of equipment types, mostly quite modern, although the mix includes about a dozen old, mid-20th century blast furnaces. While in China, the number of blast furnaces exceeds 1,000.
Of course, Chinese steelmakers know that their 1,000 blast furnaces are old tech, burning dirty coal and belching smoke. Yet they continue to use what they have. First, because blast furnaces work; they produce steel.
Also, blast furnaces provide employment for literally millions of people. Which brings us back to the CCP, which has been firmly behind China’s steelmaking expansion.
Indeed, China’s vast steelmaking abilities reflect CCP political control. This is because steel mills are big, costly facilities, and blast furnaces are very visible.
For this reason alone, the CCP is not shy about supporting steelmakers and even subsidizing them. The political message is not lost on millions of people who owe their jobs and the food on their table to the Glorious Party. It’s that simple.
Steelmaking creates jobs up and down the line too. It’s a long list, from coal miners and power plant workers to people who work the docks unloading cargo ships filled with iron ore from Australia, Brazil and South Africa.
And then, of course, there’s all that steel.
China’s massive output of steel is the backbone of modern China. Steel is the literal structure of its cities, housing for its people, transportation systems, farms and factories, military equipment and much more.
For three decades the world has watched a massive, continental scale buildout within China, and it’s now spreading outwards with transcontinental implications based on China’s Belt and Road Initiative.
Another angle comes to mind too, which is how China dominates the world in terms of energy use and carbon emissions. In other words, all that steel requires a lot of coal, electricity, natural gas and even oil. The result?
Here’s the CO2 graph for the past 220 years, showing both the U.S. and China.
There’s plenty to say about this graph. But the key point here is that China’s CO2 emissions are about double those of the total from the U.S.
Meanwhile, see how the China curve moved upwards beginning in about the 1970s and skyrocketed in 2000, along with China’s steel output.
In the U.S., and in the West in general, many people anguish over every molecule of CO2 that emits from a tailpipe or gas burner on a stove. The Biden administration and its anti-carbon policymakers come to mind.
Yet the fact is that China runs by far the largest carbon-emitting economic program in the world, much of it laundered through its steel industry.
As both the steel chart and CO2 chart above show, China dwarfs the U.S. (and every other country in the world) in output of both metal and greenhouse gas.
At the same time, think of China and its steel industry as the new face of the global economy. China is the one and only massive player. It dominates the planet in terms of steelmaking, with related demand for inputs like iron ore and energy to make it happen, and outputs like steel and CO2.
By comparison, many in the U.S. like to brag about how great the American economy is and how wealthy the country is because our Federal Reserve creates dollars in its dollar-making mill on Constitution Avenue in Washington.
We certainly have two different worldviews here. In China, leaders have determined that basic industries like steel are the foundation for economic progress and prosperity. While in the U.S., the idea is that the government’s central bank can just crank out dollars.
But really… What country has a better crack at leading the world economy of the future. One with steel mills? Or with dollar mills?
Over time, we’ll find out.
And on that note, I rest my case.
That’s all for now… Thank you for subscribing and reading.
Managing Editor, Rich Retirement Letter
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