China steel mills start taking the high road
THESE are not the best of times to be one of China's massive, state-owned steel mills. The domestic economy is slowing, competition is increasing, and there is widespread disgust and impatience with the smog pouring out of their stacks. In short, their lucrative business model for the past three decades is slowly dying. So what is a manager of a Chinese steel mill to do?
One surprisingly popular option is to bid China goodbye. In November, Hebei Iron & Steel Co Ltd, a provincial-owned company and China's largest steelmaker by production, announced that it was moving five million tonnes of its annual production - roughly 11 per cent of the 45 million tonnes of steel that it makes every year - to South Africa. According to press reports, it will not be going abroad alone. By 2023, Hebei Province - China's most polluted province - plans to export 20 million tonnes of steel, 30 million tonnes of cement and 10 million weight boxes of glass capacity (a weight box equals roughly 50 kg) to points still not named.
At first glance, the export of excess industrial capacity would not appear to make much business sense. As Bloomberg News noted two weeks ago, Hebei Iron & Steel's South African mill will be "equivalent to two-thirds of that nation's output last year, and a third of continental Africa's". In other words, it is not clear that there is much demand in these new locales for the Chinese steel giant's plentiful wares. Why, then, are they doing it?
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