China’s Low-Cost Export Offensive Amid Weak Domestic Demand Hits Profits in South Korea’s and Japan’s Key Industries

Weak domestic demand drives China’s low-cost exports, pressuring South Korean and Japanese chemical and steel markets
Japanese producers face falling sales and profits as tariffs aim to protect domestic industry
Chinese alternative steel products enter South Korea, challenging local producers’ pricing power

China’s low-cost export offensive, fueled by excess capacity, is putting pressure on industries in South Korea and Japan. In Japan, Chinese chemical products gained market share as the Iran war disrupted supplies of Middle Eastern feedstocks, while steelmakers’ profitability deteriorated amid competition from cheap imports. Although South Korea and Japan have imposed anti-dumping duties to protect their steel industries, growing supplies of Chinese galvanized steel made from hot-rolled sheet—a potential substitute for cold-rolled galvanized steel—have heightened concerns in South Korea that domestic producers could lose customers even after the tariffs took effect.

Chinese Plastic Feedstocks and Finished Products Gain Share in Japan

According to Nikkei Asia on September 28, an analysis of the latest trade statistics from Japan’s Ministry of Finance found that Japanese imports of plastic materials from China surged 52% year on year between March and July. China’s share of Japan’s plastic-material imports rose from 11.8% to 16.1%. The increase extended beyond feedstocks. Imports of Chinese finished products, including films and pipes, rose 23% over the same period, lifting China’s share of those categories from 47.6% to 51.5%.

The influx of Chinese chemical products into Japan reflects an expansion of low-cost exports by Chinese producers while the Iran war disrupted supplies of Middle Eastern feedstocks. Japan has relied on the Middle East for more than 80% of its naphtha requirements and increased imports of Chinese products amid procurement disruptions and price volatility. Chinese producers added to the pressure on Japanese companies by exporting surplus output from their domestic market at low prices. Chinese plastic feedstocks are 10% to 20% cheaper than Japanese equivalents. The impact of rising low-cost imports is especially severe for Japan’s petrochemical industry, which is already struggling with low operating rates. According to the Japan Petrochemical Industry Association, ethylene plant utilization stood at 73.5% in August, remaining below the 90% level regarded as the break-even point for the 49th consecutive month.

Imports of Chinese Basic Petrochemicals Surge More Than Twelvefold

The rise in imports from China has been steeper still for the six core basic petrochemicals often described as the building blocks of the industry. Between March and July, Japan imported a total of 54,000 metric tons of ethylene, propylene, butadiene, benzene, toluene and xylene from China, more than 12 times the year-earlier volume. By product, imports of toluene, used in paint solvents and other applications, increased more than eightfold. Imports of Chinese butadiene, a feedstock for synthetic rubber used in tires, resumed after having ceased in 2021. Japan thus expanded its sourcing from China beyond plastic materials and finished products to basic feedstocks.

The increase in Chinese imports coincided with disruptions to Japan’s naphtha procurement caused by the Iran war. As supplies of Middle Eastern naphtha became uncertain, Japanese chemical companies secured Chinese basic petrochemicals to address feedstock shortages. Import trends nevertheless differed by product. Imports of Chinese basic petrochemicals returned to prewar levels in July, while imports of plastic resins and finished products remained elevated. Purchases to fill wartime feedstock shortages declined, but competitively priced Chinese products continued to enter the Japanese market.

Record Chinese Steel Exports Intensify Price Pressure on Japanese Producers

China’s low-cost export offensive is also pressuring Japanese steelmakers. China’s property downturn has reduced steel demand, but production has not fallen by a comparable amount, prompting producers to sell output that the domestic market cannot absorb overseas at low prices. According to the Japan Iron and Steel Federation, China’s crude steel production fell 4.4% last year, while steel exports rose 7.5% to a record 119.02 million metric tons. As surplus output flowed abroad, Japanese producers were forced into price competition with Chinese products both at home and in export markets.

In Japan, cheap Chinese imports have been cited as a constraint on price increases for domestically produced steel. During deliberations at the Ministry of Finance, industry representatives presented data showing that imported steel sold for substantially less than domestic products, contributing to declines in Japanese producers’ sales volumes and market shares. They said customers had used import prices to demand discounts, making it difficult for manufacturers to pass on higher production costs. A Ministry of Finance investigation found that both the volume and Japanese market share of Chinese galvanized steel imports increased in fiscal 2024. Japanese producers cut prices to retain customers but could not prevent sales volumes from falling; revenue and operating profit also declined sharply.

Steel Tariffs and Wider Investigations Escalate China–Japan Trade Frictions

Concern within Japanese industry over low-cost Chinese products has led to anti-dumping measures. Since August 8, the Japanese government has imposed provisional anti-dumping duties of 29.2% to 55.3% on Chinese hot-dip galvanized steel sheets and strips. Japanese steelmakers, including Nippon Steel and Kobe Steel, had sought an investigation, arguing that cheap imports had harmed the domestic industry. In its preliminary inquiry, the government found that dumped imports and injury to domestic industry were likely to be established. The provisional duties, which cover products used in construction materials and home-appliance components, will remain in effect until December 7.

The investigations have expanded to other steel products. In June, the Japanese government separately opened anti-dumping investigations into Chinese hot-rolled and cold-rolled steel sheets. The hot-rolled steel investigation followed applications by Nippon Steel, JFE Steel, Kobe Steel and Nakayama Steel Works, while major Japanese steelmakers also participated in the cold-rolled steel case. Provisional duties are in force for galvanized steel, but the hot-rolled and cold-rolled products remain at the stage of investigating dumping and injury to domestic industry.

China Responds With Investigation and Deposits on Japanese DCS

As Japan imposes tariffs on Chinese steel, China is also demanding steep import deposits on a Japanese semiconductor material. On September 7, China’s Ministry of Commerce issued a preliminary finding that Japanese dichlorosilane (DCS) had harmed its domestic industry and required importers, beginning the following day, to provide deposits equal to 80.8% to 99.2% of the product price. China set different deposit rates by supplier: 99.2% for Shin-Etsu Chemical and other Japanese companies, and 80.8% for Denal Silane. Chinese companies importing Japanese products thus face a heavier cash-flow burden even before final duties are determined.

China launched its DCS investigation in January, before Japan imposed provisional steel duties. At the time, the Ministry of Commerce cited an industry petition alleging that Japanese DCS import prices had fallen 31% between 2022 and 2024, harming Chinese producers. A day before opening the investigation, China also restricted exports of dual-use goods to Japanese military-related end users. According to the Japan External Trade Organization (JETRO), China imported approximately 145 metric tons of Japanese DCS in the first half of last year, giving it a 60% share of the local market. Japan’s provisional duties on Chinese steel and China’s collection of DCS deposits have since taken effect in succession, raising costs for companies supplying products to the other country. The Japanese government says it has protested China’s measures and will assess their impact on Japanese companies before deciding how to respond.

Table 1. South Korea’s Anti-Dumping Response to Low-Cost Chinese Products and the Influx of HGI

South Korea Also Struggles With China’s Low-Cost Export Offensive

South Korea likewise faces a surge of low-cost Chinese products. According to the Korea Trade Commission under the Ministry of Trade, Industry and Resources, domestic companies filed 13 applications for anti-dumping investigations last year, the most since the commission was established in 1987. Nine targeted Chinese products, while steel and petrochemicals accounted for five applications each. The average size of the domestic markets for the products covered by applications increased 352%, from approximately $292 million in 2022 to $1.32 billion last year. The figures reflect a growing number of companies in South Korea’s core industries reporting harm as China’s weak domestic demand and excess capacity drive low-cost exports.

In response, the government imposed provisional anti-dumping duties in June on Chinese galvanized steel made from cold-rolled sheet (CGI). Chinese producers, however, expanded sales to South Korean structural-pipe manufacturers and other customers by supplying galvanized steel made from hot-rolled sheet (HGI), which falls outside the tariff’s scope. HGI is produced by removing oxides from the surface of hot-rolled sheet and applying zinc directly, reducing production costs by eliminating the cold-rolling stage. Industry representatives say HGI is excluded because the current duties apply to products galvanized after cold rolling. Some in South Korea’s steel industry have projected that the volume of HGI Chinese producers supply to the country over the next two to three months could equal its previous annual import volume.

Chinese producers have gone further, making thinner HGI to pursue established customers for cold-rolled galvanized steel. Products offered in South Korea early this month included sheet as thin as 0.8 mm. Quoted supply prices were around $640 per metric ton for standard specifications and exceeded $700 for thinner products after thickness-related premiums. The main targets are applications such as steel pipes and construction materials where HGI can replace cold-rolled galvanized steel. As Chinese HGI enters the construction-materials market, South Korea’s cold-rolled steel industry has raised concerns about its performance. Industry representatives argue that buyers are choosing the lower-priced product even though it remains unclear whether its durability and other properties have been adequately verified for uses such as apartment-building cladding, noise barriers and noise-reduction tunnels, where cold-rolled galvanized steel has been used.