Adam Minter writes:\u00a0 These are not the best of times to be one of China’s massive, state-owned steel mills. So what\u2019s a manager of a Chinese steel mill to do?<\/p>\n
Hebei Iron & Steel\u2019s is building a big South African mill.\u00a0 It will produce the \u201cequivalent to two-thirds of that nation\u2019s output last year, and a third of continental Africa\u2019s.\u201d In other words, it’s not clear there’s much demand in these new locales for the Chinese steel giant’s plentiful wares. Why, then, are they doing it?<\/p>\n
The officials in Hebei Province faced political pressure to reduce their environmental impact in China: reducing production of steel, cement and glass\u00a0— all\u00a0highly polluting industries, especially in developing countries — will have a direct impact on Xi Jinping\u2019s pollution goals. Starting in Hebei will have the added benefit of cleaning up polluted, neighboring Beijing.<\/p>\n
Second, Hebei may simply be at a loss as to how to scale back businesses that they recognize have become massively bloated. Officials in China\u2019s construction-related industries clearly have too much capacity and too little demand.\u00a0 The effect on domestic Chinese steel prices has been devastating.<\/p>\n
So where is the steel going in the absence of a strong domestic market? During the first 11 months of 2014, China exported 86 million tons of steel (almost equal to total U.S. production in 2013), up 47 percent over the same period in 2013. But the export market is hardly a sustainable bet in the long-term, especially at a time when the United States and other importing countries are erecting anti-dumping fees on Chinese steel.<\/p>\n
For a company looking for growth over the long-term, and significant capitol to invest, that really only leaves one choice: go global. In fact, the Chinese government has had a \u201cgo global\u201d policy since the 1990s.\u00a0 Companies are encouraged to set up subsidiaries abroad, for the purpose of extracting raw materials and energy and — to a lesser extent \u2013 manufacture. \u201cGoing global\u201d as a strategy has taken on urgency.<\/p>\n
China\u2019s ruling State Council announced that it will give financial assistance to firm that go global.\u00a0 The goals are two-fold. First, China wants to see its flagship firms become internationally competitive.\u00a0 Second, bankrolling such overseas expansions is a signal that China wants better returns — in the form of profit and political influence — on its considerable foreign exchange reserves. Though Hebei Iron & Steel announced its South African plans two months before the State Council’s announcement, it\u2019s all but certain that it’s benefiting from the promised subsidies.<\/p>\n
Will it work?, Hebei Iron & Steel will likely count on using its newly-built modern South African mill to meet demand in emerging Africa. To be sure, it\u2019s hardly a safe bet. But so long as China appears incapable of fostering a climate in which companies want to invest, it might just be the best one available — and one that other Chinese companies are also likely to soon embrace.<\/p>\n
Adam Minter writes:\u00a0 These are not the best of times to be one of China’s massive, state-owned steel mills. So what\u2019s a manager of a Chinese steel mill to do? Hebei Iron & Steel\u2019s is building a big South African … Continue reading ![\"China-](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2014\/12\/China-Go-Global-with-Steel-300x143.jpg\")
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