CNIA announcement - more to it than meets the eye

My wife is proudly and patriotically Chinese. She often says to me, “You foreigners are too simple.”

It could be that we foreigners have taken too simplistic an approach to the recent CNIA announcement of production cuts and commitments to hold capacity back from the market for one year. The announcement came out of a meeting of 14 smelter groups in Kunming earlier this month. It got global coverage in the press, although the domestic China market seemed not to care too much about it.

I asked my Chinese staff to examine the announcement in its original Chinese. I wanted to find out if the announcement had any loopholes or cute wording that might give companies an out to exempt themselves from the decisions.

What we found was that some aspects got glossed over in the English version and the news stories. Some of them were tiny, some not so tiny. For instance, in Chinese idiom, to refer to the end of the year more often means the end of the lunar year, not the calendar year. My staff tell me that when it is not expressly put, Chinese custom would default to the lunar year. That gives smelters an extra 6 weeks to shut down. so it’s not hugely important, but it illustrates how different cultures understand certain terms.

More interesting was that my team found that the CNIA original wording says it “has the ability” to close capacity. It doesn’t go any further than that. Almost 2 weeks after the announcement, it is now clear that this interpretation is more accurate. So far, only Shandong Weiqiao has announced any production cut (even though it is also adding capacity). Yunnan Dongguan smelter has stopped its closing process, with the Yunnan provincial government dangling subsidies in front of the company. That plant will now reman open, running the pots it hadn’t already closed despite being on the CNIA list. Already the 800,00t cuts that the CNIA promised seem to have shrunk to 500,000t or less.

Reflecting on the Chinese original as a whole, my staff also pointed out that there is nothing in the document that provides any legal, bureaucratic, regulatory or policing support for the announcement. Chinese official documents invariably carry chapter and verse references to the source of their power.

It has long been a mantra of mine that you have to go back to the source documents, especially when it comes to China. Of course it is not just the Chinese who put out glowing press releases, but our readiness to accept news items like the CNIA announcement is indicative of an underlying problem. It is too easy to accept such announcements as “gospel”.

Perhaps this difference between the Chinese interpretation and the foreign interpretation of the same announcement explains why the SHFE has remained stuck well below RMB 11,000/t.

Or it simply proves that my wife is right (again.)