Chinese companies have invested billions of dollars in planned steel and coal projects as they chase new markets by shifting production to south-east Asia.
In the past four years, Chinese steel companies have funded 32 million tonnes of annual capacity in new steel projects in Indonesia and Malaysia, according to a Financial Times calculation, equivalent to more than 40% of steel consumption in 2016 by the 10 Association of Southeast Asian Nations member states.
Steel has been a contentious commodity as trade tensions flare between Washington and Beijing, with the US imposing global steel tariffs targeted towards what it perceives as cheap Chinese steel flooding global markets.
That, coupled with strong domestic demand last year has led to China to reduce its steel exports. Instead, Chinese producers are moving existing production capacity and investing in plants abroad, predominantly in south-east Asia, to produce and sell in fast-growing markets without the threat of tariffs.
Fast-rising incomes in south-east Asia have meant a boom in car production and construction – both steel-intensive industries. Indonesia and Malaysia still import more than half the steel they consume each year.
For Chinese producers, the shift is a matter of shoring up dominance. China's steel sector is the largest in the world by output, mainly due to decades of strong domestic demand. That is changing, as authorities cut steel capacity and an economic stimulus at home peters out.
"China's investment opportunities inside China are dwindling, so obviously it would like to find better opportunities overseas," said Tomas Gutierrez, Asia editor at industry publication Kallanish Commodities.
Sources:sxcoal
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