Chapter 14

The Steel Industry

Special arrangements for the steel industry in China’s WTO document concern mainly tariff reduction, non-tariff barriers and rights to operate international trade. For the period from January to November this year, the steel industry of Shanghai reports a total income of RMB 98,709 million, which means a 33.5% annual growth. The total profits for the same reach RMB 15,091 million, a 49.9% year-on-year increase.  

I. The implementation of Relevant WTO Commitments and the Impact

1. In 2003, the tariff that China imposed on the import of steel products was 5.13% on average. According to the WTO commitment, the tariff on imported steel products was reduced to 4.93% in 2004, 3.9% lower than that in 2003.

In light of the scale and schedule of the tariff reduction for steel products, the impact is most obvious for some high added-value and hi-tech products, such as hot-rolled steel sheets, cold-rolled steel sheet, galvanized flat steel, stainless steel bars, steel and iron wires, and quality alloy. The reduction of tariff after the accession to the WTO will deal a great impact on the domestic steel market. For example, the custom duty for 0.5mm-1.0mm cold-rolled steel sheets that take the biggest share in the imported steel products has been reduced from 8% to 3%，a 62% fall. The custom duty for 3mm hot-rolled coils has been cut by half from 6% to 3%. The import duty for oil country tubular steel has fallen from 10% to 4%, that for whorl steel has dropped from 10% to 6.5%, and that for steel wires has decreased by 60.2% from 11.9% to 4.73%. Calculated by the current composition of imported steel products, the custom duty on the import of steel products has fallen by over 50% on average. 

2. In 2004, the right to operate steel-related business has been further decentralized. The number of enterprises authorized by the Commerce Ministry of China to import steel products has increased by about 10% from 335 in 2003 to 368 in 2004. In addition, there are over 100 subsidiaries under the authorized enterprises. Therefore, the total number of businesses entitled to the operation of imported steel products comes near to 500. That number does not include enterprises with foreign investment or foreign enterprises or enterprises in the special economic zones that import steel materials and products for their own use. According to China’s WTO commitments, the country will totally decentralize and liberalize the operation of imported steel products three years after the WTO accession. Therefore, the Commerce Ministry of China issued a proclamation in December 2004 that control over steel import is removed as of December 11, 2004, and any enterprises that have reported for record and registration according to the external trade law may import steel products.

3. With the dramatic decline in steel tariff, the abolition of most non-tariff barriers, and the gradual liberalization of relevant services, the steel and metal industry will be affected to a larger degree and the import of certain steel products will continue to increase. The fall of steel import in 2004 is mainly due to the rise of prices in the international market to well above the domestic average. Currently, however, the steel prices in the international market are on the decline, and the prices of steel boards in the American market in particular are falling steadily. Therefore, as the tariff on all steel and steel products (except iron-cast sanitary wares and their parts) has fallen to the agreed minimum in 2004 and the prices of steel in the international market keeps falling, the import of steel materials and products will rise and the impact on the domestic market will increase correspondingly.

In addition, some steel-related downstream sectors will also be affected by tariff reduction. For example, the tariff on automobiles stood at between 80% and 100% before the WTO accession, but had been cut down to 43.8% by the end of the year 2002. The tariff items and non-tariff measures to be abolished as of January 1, 2005 include those concerning automotive and machinery products, so the automotive industry and the machinery industry will be affected greatly. The import of automobiles is expected to grow dramatically, which will bring about great changes to the production and sales of automobiles in the domestic market. These changes will inevitably affect the use of steel in the automotive industry.

II. Development of the Steel Industry after Accession to the WTO

Ever since 2002, major steel enterprises in the country have started and accelerated the strategy of strengthening and expanding themselves to achieve higher industrial concentration. At present, the largest steel business groups in the country, such as Baosteel, Anshan Steel, Wuhan Steel and Ma’anshan Steel, have stepped up their efforts in technological advancement and new product development, so the technology content and added value of their products have increased steadily. They have therefore become the major steel exporters and major suppliers of special steel products and import substitutes. Eleven steel enterprises have reported total profits of over one billion RMB for the first three quarters of the year 2004, while only six of them reached this goal during the same period of the year 2003. In 2003, thirteen steel enterprises attained a production capacity of five million tons, namely, Baosteel, Anshan Steel, Wuhan Steel, Capital Steel (or Shougang Group),   Ma’anshan Steel, Tangshan Steel, Handan Steel, Baotou Steel, Benxi Steel, Panzhihua Steel, Hualing Steel, Jinan Steel, and Sha Steel (or Shagang Group of Jiangsu Province). In 2004, Laiwu Steel and Anyang Steel were added to the rank.

In 2003, the national steel output totaled 220,116,300 tons, 3,843,470 more than that of the previous year, which represents a 21.15% year-on-year growth. The output accounted for 23% of the global total, and was larger than the output of the USA and Japan combined. China has therefore made a record in the world as the first country to attain an annual steel production capacity of over 200 million tons and to rank first in steel production in the world for eight straight years.

The metal industry has a share of 11.4% in the industrial added value of the country and has contributed 1.9 percentage points to the industrial growth. The construction of metallurgy facilities has apparently accelerated. According to statistics, 81 blast furnaces were constructed in 2003，and 57 such furnaces were under construction in 2004. After these furnaces are completed and put to use, they will increase the total output of molten iron by 78 million tons. Most of the existing furnaces and the furnaces under construction are below 1,000 cubic meters in capacity. In 2003, 20 coking plants were constructed and provided an additional capacity of eight million tons. In 2004, 37 coking plants were completed and added 17 million tons to the existing capacity. In terms of steel making facilities, 59 plants were constructed in 2003 and 30 plants are under construction in 2004. After they are completed and put to use, these new plants will add 67 million tons to the existing steel production capacity. In 2003, 40 rolling mills were constructed and 57 more are under construction in 2004. They will provide a total additional capacity of 68 million tons.

In the first three quarters of the year 2004, the industry was stable in operation and reported sustained growth. The accumulated industrial added value produced from January to September this year reached RMB 163.9 billion (at 1990 prices), standing for a year-on-year growth of 12.31%. The accumulated sales volume for the same period amounted to RMB 259.5 billion, which means a 17.89% annual increase. For the three quarters, the industry contributed a total profit tax of RMB 30 billion, 56.43% higher than the same period of the previous year, and netted a total profit of RMB 9,630 million which was 2.35 times that of the same period of the previous year. Considering that RMB 2.7 billion more has been withdrawn for depreciation reserve for the three quarters, the profit has exceeded the goal of five billion RMB set at the beginning of the year. The total loss of the loss-making enterprises has been reduced to RMB 748 million, RMB 340 million less than that of the same period of the previous year, which means a 31.16% year-on-year decrease. The loss coverage across the industry was reduced to 23%，9 percentage points lower than the same period of the previous year, which has come near the goal of 20%. All economic indices for the industry have improved obviously. The cost reduction is 2% more than the goal for this year, and the continuous casting ratio has reached 81.62%. The contractual production of import substitutes has reached 2,970,000 tons in which 2,654,700 tons have been delivered. The goal of three million tons for import substitutes for the year 2004 will be fulfilled or even exceeded.

III. Countermeasures Taken by the Steel Industry of Shanghai and the Effects

In order to increase their comprehensive competitiveness and establish themselves in the ever changing market, steel enterprises in Shanghai have got involved in a new round of reform. As a most prominent participant in the reform movement, Baosteel has fostered through experiment a flat management mode. By adjusting its internal management system, cleaning up and reorganizing its subsidiaries, and standardizing its management system, Baosteel has optimized its business process, enhanced it control and coordination capability, and increased its sensitivity and adaptability to the market changes, thus constructing a solid ground for its further growth. Baosteel has managed to appear on the list of top 500 enterprises published in Fortune July 2004, ranking 372^nd, the best of all Chinese enterprises.

For the period from January to November 2004, Baosteel reports a total iron output of 16,291,000 tons that marks a year-on-year growth of 8.5% and accounts for 91.9% of the goal for the year. The steel output amounts to 19,571,500 tons that represents a year-on-year increase of 7.2% and accounts for 91.0% of the goal for the year. The Group turned out in the same period 21,165,700 tons of steel commodities, marking a 9.3% growth over the same period of the previous year and 92.3% of the goal for the year. In the same period, Baosteel exported in total 2,011,500 tons of semi-finished steel products, marking a 36.5% year-on-year growth and 109.10% of the annual goal. The Group has won for the country a total foreign exchange reserve of $1,276,617,900 which is 119.23% of the annual goal.

Box 14.1      Anti-dumping investigation against cold-rolled sheet import from Russia, South Korea, Ukraine, Kazakstan and Taiwan

On March 23, 2002, the former Ministry of External Trade and Economic Cooperation announced that the Ministry had started an anti-dumping investigation against cold-rolled steel sheets imported from Russia, South Korea, Ukraine, Kazakstan and Taiwan (hereinafter called the Investigated Commodities). As a result, the Ministry announced on January 22, 2004 that a penalty tariff between 9% and 55% was imposed on the investigated commodities produced in the above countries and region. On May 17, 2004, the Commerce Ministry of China announced in a bulletin that the Ministry has decided to conduct necessary re-examination concerning the need to continue the penalty tariff on the investigated commodities. On September 10, 2004, the Commerce Ministry announced that the penalty tariff on the cold-rolled steel sheets imported from Russia, South Korea, Ukraine, Kazakstan and Taiwan was to be suspended as of September 10, 2004. The anti-dumping measures have restored the prices of cold-rolled steel sheets to the reasonable level in the domestic market, effectively upholding the interests and pushing forward the healthy development of the domestic industry.