Shanghai Baosteel Group Corporation

1961–2010

Shanghai Baosteel Group Corporation is the Chinese government-owned holding company for a group of steel, steel products, and steel trading companies, which themselves operate under the publicly listed flagship Shanghai Iron & Steel Co. Ltd. Shanghai Baosteel is China's leading steel producer: In 2005, the company's annual output topped 20 million tons, and the company expects to double that by 2010. As such, the company dominates the Chinese steel industry, controlling some 10 percent of the total market, and ranks among the world's top steel producers. Shanghai Baosteel focuses on the production of steel plate and steel tubing. The company produces high-grade steel for the automobile, shipbuilding, pipeline, household appliance, and other sectors, primarily for the domestic market. The company's steel is also used for tool & die equipment, springs and bearings, and for the aerospace and commercial aviation industries. Shanghai Baosteel has begun investing in developing new steel production technologies, in part in an effort to win a greater share of the international automobile market. The company is a major supplier to international automakers such as Fiat. Shanghai Iron & Steel Co. operates the largest and most modern facility in China, accounting for more than half of the group's total production. Other companies in the group include Baosteel Shanghai No. 1 Iron & Steel Co., which produces premium stainless steel, among other products; Pudong Steel Corporation, a plate producer; and No. 5 Steel Corporation, a specialty steel products producer. Shanghai Baosteel also has interests in mining, particularly coal mining, both in China and abroad. The company's sales and distribution are handled through subsidiary Shanghai Baosteel International Economic & Trading Corporation Ltd., which operates a marketing network throughout China and in ten countries internationally. Shanghai Baosteel is led by President and Chairwoman Xie Qihua.

Founding a Modern Steel Giant in the 1970s

Prior to the early 1950s, China's iron and steel industry remained undeveloped in large part, with very few plants in operation. The first (and only) modern steel plant had been built by the Japanese in Anshan soon after World War I, and this complex eventually featured nine blast furnaces. Yet total production never topped one million tons. The Anshan complex was mostly destroyed during World War II, and again during the Chinese civil war, and its equipment and machinery were appropriated by the departing Soviets.

With the creation of the People's Republic of China, the country made a new effort to develop an industrial infrastructure. The central government began investing in the construction of new steel plants, for the most part based on Soviet designs and technology. The Anshan complex was rebuilt, and eventually reached a total output of seven million tons. Another large facility was built at Wuhan in the early 1950s. Many small, but modern, steel plants were constructed during this period. At the same time, many local and regional governments began installing a large number of so-called "backyard" furnaces for the production of pig iron. The period launched by the Great Leap Forward saw a dramatic increase in the country's steel output.

The Chinese steel industry collapsed again into the 1960s, in part because the overworking of the country's larger furnaces forced them to be shut down. By 1961, production had dropped to half of its total from the year before. The government began an effort to centralize control of the steel industry, shutting down many of the smaller plants and importing new technology from Austria, Japan, and elsewhere.

The steel industry remained linked to the political situation in the country, with output rising in periods of relative stability, such as the early 1960s, and dropping back during crisis times such as the Cultural Revolution in the late 1960s and the political battles of the post-Mao era. Nonetheless, steel remained an essential component of China's effort to modernize its industrial and economic infrastructure. By 1979, the country's total output topped 34 million tons. Into the 1980s, the country boasted 13 plants capable of producing more than one million tons annually. In addition, some 800 small-scale plants remained in operation.

In 2003, Baosteel launched an acquisition drive worth some $270 million, which included the acquisitions of Lubao Steel Pipe Corporation and Baogang Yichang Steel Sheets Corporation.

1978–2003

The Chinese government began instituting economic reforms at the end of the 1970s in an effort to move beyond the disastrous policies of the Great Leap Forward era. Steel continued to play a central role in the government's plans. At the end of the 1970s, the government set a total domestic production target of 80 million tons per year to be reached by the end of the 1980s. For the most part, the government sought to refurbish and modernize its existing plants, including an effort to improve fuel efficiency at the predominantly coal-burning sites.

Yet the new reform era, which, under Deng Xiaoping, began opening the Chinese economy to the foreign market in the late 1970s, also called for the creation of a new, large-scale integrated steel works at Baoshan, near the Shanghai port. The project was developed in close collaboration with the Japanese; indeed, the site was meant to be an exact copy of an existing plant in Kimitsu, operated by Nippon Steel. That plant was considered at the time to be the world's most modern steel facility.

Construction on the new site, which later boasted a total output of 20 million tons, began in 1978. The initial completion date was scheduled for 1982. A series of delays, however, set the commissioning of the facility back to 1985, and then to 1988. From the start, the facility, called Baoshan Iron & Steel Corporation, benefited from its special status as the Chinese government's steel industry flagship. As such, the facility took on the country's best engineers and managers, including Xie Qihua, who joined the company in 1978 and later emerged as its chairwoman. Whereas the country's existing steel plants were burdened by outmoded and inefficient equipment, and forced to produce unprofitable and low-grade steel products, Baoshan was designed from the start to incorporate cutting-edge technology and to produce highly profitable specialty steels.

The company's privileged position also put it first in line for a number of important contracts. In 1989, for example, Baoshan Iron & Steel became the primary supplier to another Chinese government flagship, Shanghai Automotive Industry Group Corporation. The company continued to win important contracts through the 1990s and into the 2000s, such as for the 4,200-kilometer West-East Natural Gas Pipeline, which launched construction in 2003. Baoshan became responsible for producing more than 60 percent of the steel for that massive project.

Becoming a World Leader in the 2000s

China's extraordinary growth during the late 1980s and through the 1990s quickly outpaced its steel production. The country was forced to turn to foreign markets for a significant percentage of its steel and iron needs. Baoshan Iron & Steel, meanwhile, emerged as an important supplier to China's infrastructure projects. As such, the company's production remained entirely focused on the domestic market.

1985–2000

Into the late 1990s, however, Baoshan began to feel the heat from a new generation of competitors. Continued economic reforms had opened up the steel industry to a variety of new players, which established their own modern steel production plants throughout the country. By the mid-2000s, there were more than 4,000 steel producers in China, and the country's total output now topped the world at 200 million tons. Yet even these levels could not keep up with the surge in China's economy during this period, and steel imports remained an important force in the domestic steel market.

In order to retain its leadership in this new marketplace, Baoshan began reorganizing at the end of the 1990s. Leading this effort was Xie Qihua, who was named the company's general manager in 1994. Xie began seeking alliances with other Chinese steel industry companies, as well as strengthening Baoshan's marketing and distribution operations. As such, in 1996 the company added a new trading component, Baosteel Group International Trade Corporation (BGITC), originally founded in 1985. That operation extended its marketing network throughout China, before adding offices in more than ten countries worldwide. The addition of BGITC helped extend Baoshan's production to the export market, with Korea becoming a major customer for the company.

Baoshan changed its name to Baosteel Iron & Steel Corporation at the beginning of 1998, in preparation for its proposed merger with Shanghai Metallurgical Group Corporation. That government-owned company boasted a payroll of some 120,000, compared with Baosteel's 10,000. Yet Shanghai Metallurgical was losing money, a situation the Chinese government hoped to turn around by merging it into profitable Baosteel.

The collapse of the Asian region economies during the crisis of the late 1990s threatened to derail the merger plans. Baosteel's profits faded quickly, as its revenues dived and its export markets disappeared. Yet by the end of 1998, the merger went through, becoming a three-way merger with the addition of another Shanghai-based steel producer, Shanghai Meishan Group Co. Ltd. The enlarged business then changed its name to Shanghai Baosteel Group Corporation, with the former Baoshan taking the lead of the new company. Baosteel now claimed the position as China's largest integrated steel works, with total annual production of nearly 20 million tons and assets of CNY 100 billion.

Baosteel began testing the public market in the late 1990s, listing four subsidiaries on the Shanghai Stock Exchange, in limited offerings that remained off-limits for foreign investors. Yet China's decision to join the World Trade Organization--opening up the country and its steel industry to full-fledged foreign competition for the first time--placed new pressure on Baosteel. To remain competitive, Baosteel recognized that it needed to develop its international operations.

As part of that effort, the company reorganized into a listing vehicle, Shanghai Baosteel Iron & Steel, under parent company Shanghai Baosteel Group. In December 2000, Shanghai Baosteel listed its shares on the Shanghai Stock Exchange. Although the listing remained restricted to domestic investors, it became China's largest ever public offering, raising some CNY 7.7 billion. The listing set the stage for a later international listing, most likely on the Hong Kong Stock Exchange, which would open the company's capital to foreign investors.

2001–2010

The listing of Shanghai Baosteel was seen as proof of the Chinese government's commitment to economic reform, especially as it placed a significant share of its flagship steel company, known by some as the Chinese steel industry's "aircraft carrier," on the public market. The listing provided capital for Baosteel's investment program, enabling it to step up its technology and boost its production. The listing also signaled a significant change in corporate culture. As Xie expressed it to the South China Morning Post: "It will make us more of a market-driven company." Xie herself was named president and chairwoman of both the publicly listed company and its government-owned parent.

Baosteel now began strengthening its position through a number of strategic alliances. In 2001, for example, the company entered a union with Shougang Group and Wuhan Iron and Steel Group Corporation. That alliance allowed Baosteel to claim the spot as the world's third largest integrated steel company. In that year, also, the company found a new technological partner in ThyssenKrupp of Germany, when the two companies launched the first phase of a new Shanghai-based stainless steel production partnership. Also in 2001, Baosteel was chosen as a primary supplier of steel to Italy's Fiat, marking a major step forward in Baosteel's efforts to become a supplier to the global automotive industry.

In 2003, Baosteel launched an acquisition drive worth some $270 million, which included the acquisitions of Lubao Steel Pipe Corporation and Baogang Yichang Steel Sheets Corporation. Baosteel previously had held significant stakes in both companies, which had nonetheless continued to compete with Baosteel. In that year, also, Baosteel set up a strategic partnership with Shanghai Automotive Industry Group, seen as an important move in the integration of the country's steel and automotive industries.

Into the mid-decade, Baosteel announced an ambitious new growth target--the doubling of its production capacity in order to claim the position as the world's top steel producer by 2010. In early 2005, the company took a step toward achieving that goal when it received approval to begin construction on a new 20-million-ton facility in Zhanjiang City, in Guangdong province. The integrated steelworks, expected to cost some $10 billion, was expected to launch production by the end of the decade. As part of its growth strategy, Baosteel reaffirmed its intention to launch a global public offering, most likely before the end of 2005. That offering would mean a coming of age for Baosteel, which already had claimed its place among the world's top steel groups.