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Baosteel is developping in suit with the state

Thursday, 02 March 2006

Chairwoman of Baosteel Group M-me Xie Qihua granted an interview to Eurasian Metals.

Yevgeny Shashkov and Xie Qihua
Yevgeny Shashkov and Xie Qihua
In November this year the delegation of Eurasian Metals visited Shanghai Baosteel Group Corporation. It had been invited by Chairwoman M-me Xie Qihua. The visit included a detailed discussion with the involvement of M-me Feng Aihua, Vice Director, Overseas Development Department; Mr.Fan Shunbyao, Director on International Relations, and Mr.Wu Dongying, Director, Strategy & Planning Department, Baoshan Iron & Steel Co. Ltd. The discussion went on during a complimentary dinner. Later on a trip to the main production site of Baosteel including visit to some shops was arranged.

Editor in Chief Yevgeny Shashkov expressed his appreciation of a warm welcome accorded and in turn invited M-me Xie Qihua to visit Moscow again in order to take part in the 4th Russian Steel Summit planned for May 31 to June 2, 2006.

Chairwoman of Baosteel Group M-me Xie Qihua granted an interview to Eurasian Metals.

EM: Shanghai Baosteel Group Corporation is among the world’s metallurgical leaders. What is Baosteel at present? What companies are integrated in it now? What are the products that Baosteel specializes in? What industries are the main consumers of metal products made by Baosteel?

– Last year Shanghai Baosteel Group Corporation (Baosteel Group) produced more than 21 million tons of crude steel, was ranked No. 6 in the world steel industry and the largest in China. Last year the sales revenue amounted to 161.8 bn RMB and Baosteel Group was ranked No. 309 among World Top 500 Companies by "Fortune" magazine. Baosteel Group makes high technical and high-value added products including steel for automobile industry, household appliances, oil and petroleum sector, shipbuilding and construction industries as well as special alloy steel. In addition Baosteel Group produces cold roiled silicon steel and stainless steel. Our major customers include automakers, household appliances makers, equipment manufacturers, oil companies, shipbuilding companies and others. Baosteel also produces tinplate for packaging applications. In addition to the customers mentioned above, Baosteel provides good quality construction steel for some important projects, for example, a stadium for sport games and transportation pipelines for petroleum and oil sector. And the space rocket recently sent to the space was also partially made from the Baosteel products.

EM: How are the leading bodies of Baosteel being formed today and to what extent is the company free in taking day-to-day decisions?

– The construction of the Baosteel plant started in 1978 with its putting into operation in September 1985. So twenty years already passed since that time. Baosteel Group built itself by three stages of construction till in 1998 Baosteel and Shanghai Metallurgical Holding Group Corporation merged with Shanghai Meishan Steel Company when Baosteel Group was formed.

Baosteel is a state-owned company and follows rules established by the Chinese Government for state-owned companies. Baosteel is a steel production company operating in a very competitive industry with the market economy rules followed in China. That is why decisions regarding raw materials till finished products are taken by the company itself following the market economy rules. But for some expansion projects the company must get approval by the government especially for land and environment protection issues. And we also have to discuss with related government authorities matters concerning provision of energy, transportation, water, power.

The Government also reforms the investment system. The party responsible for the investment is also responsible for the outcome of it, including profit. In 2000 Baoshan Iron and Steel Co. Ltd listed shares in the Shanghai exchange market and at the beginning of this year Baosteel made a second share offering and acquired major steel product assets in the group. Baosteel Group is a parent company (a shareholding company) and have a board of directors, a management team, a supervisory board, and is also a major shareholder in which Baoshan Iron and Steel Co.Ltd. has 75% of shares.

The company is also directly supervised by the State Assets Supervisory Commission. On the 17th of October the Commission finalized the members of the new board. Totally there are nine members in the board of Baosteel Group: I myself is a chairman of the board, the president of Baosteel is also the member of this board, a vice chairman is also from Baosteel and besides we have an employee representative as a director with five independent directors appointed by the State Assets Supervisory Commission. Three of them have a very rich management experience in big corporations: one from Hong Kong and the other one from Singapore.

This is the kind of structure of our board of directors. Our company’s operations completely follow the stipulations and rules of the shareholding company’s management. The board of directors decides the major issues of the company but daily operations are executed by the management team. The supervisory board was also appointed by the State Assets Supervisory Commission. The organization of Baosteel Group is very similar to that of international companies which the major shareholder appoints several directors while one third of directors come from external sources.

Baosteel Group is a holding company and as such we have a lot of subsidiaries, joint ventures and equity-sharing companies. The function of the holding company is to make decisions on major investment issues, expansion of capacity and other new developments. Each subsidiary in the group has its own operation management team similar to that of Baosteel Group. In that way the state-owned assets are very well kept and managed. We are trying to meet our final target and optimize our management system to realize it.

EM: How is the company’s investment policy formed, what are its main sources of investments? Is there a strategic program of developing Baosteel and what are its basic directions? What investment projects is Baosteel implementing at present?

– According to equity participation in Baosteel Group the subsidiaries give their property in conformity with profit and percentage of shares. The way to raise fund is to issue some shares in the capital market.
The Chinese Government released the latest steel industry policy on the 20th of July, according to which, we are looking for more developable opportunities which is followed by group’s strategy. Our concern is to find a suitable target for acquisition or merger in order to strengthen Baosteel’s power according to future development of our products.

EM: What is the Government’s policy of "cooling-off" or "slowing-down" of the country’s metals industry in recent times? What are the main goals of this policy?

– The new policy recently issued by the Central Government is oriented to a slowdown of some overheated industries – steel and aluminum segments. The production growth in these industries is higher than that of demand in domestic market. In addition to that, these industries have the problems of environmental protection and energy consumption. So the orientation must be turned from quantity to quality and profit. Such policy is playing a guidance role for these industries. The main goal of these industries is to save energy, protect environment and become ecologically friendly. The target will be to reduce emissions and re-use materials and resources.

EM: What do you think of cooperation with Russian industry?

– Russia has a much longer development history in steel industry than China which is developing its steel business rapidly but quite recently. For nine years China has been the largest steel producer in the world.
Russia has very rich raw material resources. In June we attended the 3rd Metallurgical Summit in Moscow and now Baosteel Group is looking forward to establishing strategic cooperation with Russian companies in raw material and steel industry fields. I think that the existing ties and trade-and-economic relations with Russia are very good and the background to establish cooperation with Russian companies is promising.

EM: What is your assessment of prospects for development of the Chinese steel industry? Will the present rates of production growth remain intact?

– Recently in China steel production grew very rapidly due to strong demand in the market. Last month the 5th Plenary Session of the 16th CPC Central Committee was held which decided on the general program for the 11th Five-Year Development Plan. According to this general program each company is drafting its own plan for the next five years. This program will be reviewed and approved next March by the Congress. Steel industry has to make out its own development plan according to this general one.

In July, as I already told, the Central Government released the latest industrial policy for the steel industry. The general target of this policy is to encourage sustainable scientific development of the steel industry, especially in the fields of energy consumption and environment-friendly production. The Government decided to close down the production facilities which became obsolete and out-of-date. According to statistics such facilities account for a hundred million ton. Many steel mills are small and fragmented and we have to centralize them. A change in product mix will involve a change in industry allocation, and by 2010 the target will be to build two or three steel mills each of 20 to 30 million tons per year capacity. As to Baosteel, it is looking for Zhanjiang in Guangdong province.

EM: Russia closely tracks down significant achievements of China. Some people consider Chinese successes as a serious geopolitical threat, some other get excited at them. However, most people agree that the People’s Republic of China will become a world leader soon. In view of this leadership, which principles, in your opinion, will then underlay relationship between China and Russia? Which part will be assigned to Russia?

– The Central Government continues to plan economic growth in China for the next decade of years. And by 2010 GDP per capita production will be doubled as compared with the year 2000. The energy consumption will be reduced by 30% as the Government encourages the scientific and sustainable development. The Central Government plans to build a harmonious society in China and to establish harmonious relationships with neighboring countries. The Chinese Government is trying to develop together with neighboring countries thus adding to the world economy growth.

China has a long history of friendship with Russia. We visited Moscow in June and we believe that Russia has a very bright future in economic growth. After attending the Summit in Moscow we went to St.Petersburg to take part in the 2nd China-Russia Investment Advancement Meeting. This forum will be held every year. That kind of activity creates a very good environment for further development of our relations.

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