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"Special safeguard" to cause overcapacity in China's tire industry
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11:41, September 18, 2009

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Although the special safeguard tariff will not be a catastrophe for China's tire industry, it will nevertheless significantly impact it, said analysts. Overcapacity will be inevitable and the competition situation for China's domestic tire enterprises will accordingly change.

In 2008, tires exported from China to the U.S. accounted for one third of China's total tire output. Once tire exports to the U.S. market were restricted, the enormous production capacity will quickly exceed domestic demand leading to overcapacity in the entire tire industry.

China exported around 2.2 billion U.S. dollars of tires to the U.S. in 2008. If the volume of tires exported to the U.S. is halved, this will lead to 12 percent domestic overcapacity and the value of China's exports falling by one billion U.S. dollars.

Yu Yongding, director of the Institute of World Economies Politics under the Chinese Academy of Social Sciences, said that in the first half of 2009, China's export volume of tires has already dropped markedly. In this situation, the launch of a special safeguard tariff will cause difficulties of varying extents to industries in the upper reaches of the industrial chain of the tire industry, such as the rubber, carbon soot and coking industries.

"The special protectionist tariff will cause China's export volume of tires to drop by about 12 percent, constricting the growth rate of the rubber industry by 5 to 6 percentage points," said Fan Rende, chairman of the China Rubber Industry Association.

Chen Aihua, research follow from Guosen Securities Company, believes that other domestic enterprises will face the risk of intensified competition and a drop in profitability due to goods originally produced for exports being sold in China and the shift of export markets.

He noted, "It is impossible to abruptly suspend production lines that have already been put into operation and the overcapacity will cause a chain reaction."

By People's Daily Online

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