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China's steel industry mixed ownership reform

Date:2016-08-30 Hits:
China iron and steel stocks are now in the stock market go up , but just open the " face ", back to the mixed ownership reform on this issue , the Chinese steel industry troubled " lining " is still there , so the private enterprises are still in the cold .

Mixed Ownership Reform of China's Steel Industry 

China’s steel shares are selling unprecedentedly well in the stock market, which is the "surface" situation, but despite of that, China’s steel industry is still facing lots of problems when it comes to mixed ownership reform, which is the "deeper" situation. So private enterprises are still disinterested.

What happened to China’s steel industry, the first large one of the world? "Now ordinary investment in steel is totally suicidal. " Wu Xichun exclaimed. Wu Xichun, the former vice-minister of Ministry of Metallurgical Industry and the honorary president of China Iron and Steel Association (CISA), has 60 years of experiences in this industry. He said so on the "forum for reform and development of private and state-owned steel enterprises -- Spotlight on Mixed Ownership" on December 13.

Problems such as over capacity, industrial decentralization, low added value of products and price war, has affected China's steel industry for years. The Paper discovered from the above forum that the insiders believe reform of state-owned enterprises is the only way to solve the problems.

Unfortunately, as time passes, state-owned steel enterprises become less appealing for private steel mills. Even if state-owned enterprises "opened up and embraced private corporation", they could still fail.

China's largest private steel company ShaGang stood out, wanting to negotiate with the state-owned enterprises. Vice president and secretary-general of shareholders’ committee of ShaGang Group, Xinren Li said on the forum, "We have the expectation to participate in the mixed ownership reform of state-owned enterprises, but our first requirement is the market reform of their system and mechanism. If they are not in place , our participation is not possible."

The rigid, inefficient system and mechanism of state-owned enterprises are not the only factors that private mills are not well motivated; their "status" after their participation is also concerning.

Xinren Li said, "Regarding discourse power in private enterprises’ participation, I suggest that we should either not take part at all, or just be the biggest shareholder in some competitive state-owned enterprises." Talking about loss of discourse power, Xinren Li is not just concerning about "who will be in the dominating position". He explained, "State-owned enterprises sell steels at below-cost price, and this causes the running off of state-owned assets. If we have no discourse power after our participation, we also lose money, aren’t we? It is the loss for the assets of the state, not of the chairman or general manager (of state-owned enterprises)".

So it seems, to avoid the "snub" they may receive, state-owned steel companies need to be more sincere in this round of reform. It might be a good solution to solve their own problems first.

"Asset-liability ratio of state-owned steel mills is high. If this problem is not solved, how can they make profits?" According to Xichun Wu, optimization of asset quality is the primary issue for state-owned steel enterprises. In 2013, the asset-liability ratio of member enterprises of CISA (excluding Baosteel , Rizhao Steel and Hisin Steel) is as high as 72.28% on average. Xichun Wu explained, "Enterprises with asset-liability ratio higher than 103% are still running, Banks to lend to them despite their insolvency". These enterprises criticized by Xichun Wu are exactly state-owned, "Who would lend to private enterprises? There’s no one. Only state-owned enterprises still get loans, because they are able to find a guarantee."

It’s time to stop "the production under deficit and the blind seeking for scale". It’s also time for state-owned enterprises to decisively "throw away unnecessary burden". State-owned enterprises should learn from the large private steel mill – Shiheng Special Steel, which is once a "small third-tier" state-owned enterprise. Chairman of Shiheng Special Steel Zhang Wuzong said, "We lost 80 million yuan during the three months from June to August in 2005". It’s the direct reason that Shiheng Special Steel decided to "stop producing any product that brings loss". Over the past five years since 2008, Shiheng Special Steel ranks out top sixty in production volume, but is in the top ten in profit, and among the top three in profit per ton of steel.

In addition, it is worth noting that not only private steel mills have different opinions for mixed ownership reform of steel industry, but state-owned steel companies are not completely obedient to big boss -- State-owned Assets Supervision and Administration Commission (SASAC). An inside policy researcher of Baosteel Group told The Paper, "The plan of the ministry does not have a good base, we Baosteel have our own idea." As for "not having a good base", from some point of view, it means that the interested parties still "take their own interests as a major concern". (Source : The Paper )