Steel in the new Millennium - 2b - Sectoral Activities

See text links
below.

2 - Steel in China

By Liu Jinghai

Part b

Competitiveness of production cost

The low technical level of steel production means that energy and raw material consumption and the size of the workforce are much larger than in advanced nations. The average equivalent energy consumption is over 100 kg per tonne more than in Japan and overall steel productivity is only 5% of that of Japan. The higher consumption of labour and material in China counteracts their low cost. Statistics from several steel complexes in China show that in 1992 the average cost of steel products was $300-350 per tonne; less than in POSCO ($405) and more than in the China Iron and Steel Complex in Taiwan, China ($262). The fact that labour costs in China include workers' living, housing, transport and other costs, as well as wages, means that they account for 14% of the total production cost, compared with 6.6% in POSCO and 14.6% in Japan. Table 3 shows business results in the sector between 1990 and 1996.

Steel markets

The main market for Chinese steel is the domestic one, and its development depends on domestic demand. In the 1990s demand has risen rapidly. Total consumption of finished rolled-steel products in China is about 95 Mt (50% long products and 42% plate and pipes). As a result of increased capacity, improved quality and a greater variety of the industry's product, its ability to domestic demand has increased in the recent years, exceeding 88% in 1996. Nowadays, most steel products can be supplied by the industry, with only small amounts of high-value special steel products needing to be imported. Now that production capacity for long products exceeds domestic demand, output is being reduced and product is being exported.

Table 3. Business results, 1990-96

(RMB 100 million)

	1990	1991	1992	1993	1994	1995
Gross output (current)	1 287.1	1 435.6	1 999.5	3 593.9	3 772.5	4 047.5
Gross output (1980 prices)	1 310.3	1 386.6	1589.1	1784.1	1 849.4	1 874.1
Total profit	66.5	71.1	102.8	290.1	263.1	113.5
Sales profit	73.5	81.1	118.9	503.6	544.4	413.4
Sales revenue	1 087.2	1 371.2	1 901.7	2 841.7	2 769.8	2 920.0
Sales cost	896.5	1 131.8	1 513.4	1 988.2	2 180.2	2 454.9
Fixed asset value	1 114.4	1 320.4	1 617.9	1 912.4	2 839.2	3 597.5
Net asset value	774.9	926.6	1 113.4	1 285.8	1 796.1	2 238.4
Source: China iron and steel industry yearbook, 1991-96.

In 1995 China imported 41.2 Mt of iron ore, 1.4 Mt of scrap, 0.5 Mt of billets, and 14 Mt of finished rolled-steel products (including 6.8 Mt of plate). Imported steel products account for 12% of the market. Exports in 1995 included 1.5 Mt of ferro-alloy, 5.4 Mt of pig iron, 4.6 Mt of billets and 5.9 Mt of finished rolled-steel products (3.75 Mt of plate).

There are three main reasons for importing steel products. Firstly, to obtain about 5 Mt of high quality products that are in excess of domestic production capacity. Secondly, overcapacity in Russia and the CIS and the favourable exchange rate have led to the import of about 6 Mt of common rolled products at low prices. Thirdly, joint venture projects in China are able to import products for their own use at reduced rates of customs duty. Some 5 Mt are imported for these projects each year.

Problems of quality, transport cost and business methods mean that Chinese rolled-steel products are still not very competitive internationally, particularly regarding quality compared with Japan, and cost compared with Russia.

Human resources management

Vocational training

The Chinese steel industry takes various measures to expand vocational training in order to develop the professional skills of steelworkers, improve their qualities and raise their employment capability. Since 1980 the industry has set planning, standards, training and examining systems for production and management positions. The systems are used at all levels to raise professional skills and abilities.

All large and medium-size steel enterprises in China have an education and vocational training department and some have vocational training institutes such as vocational universities, technical schools and training centre. The Ministry of Metallurgical Industry (MMI) also has a department for managing labour affairs and vocational training in the steel industry. Under MMI there are 17 universities, 27 technical secondary schools, 210 technical schools, 67 technical high schools, 44 vocational universities and 40 vocational technical schools. In the late 1980s MMI established four new management universities and three new vocational training centres with the capacity to train 6,000 persons per year in business and administration. The industry has now a complete vocational training system for blue and white collar workers at all levels.

In 1995 there were 71,000 people employed in education and training in the steel industry, including 8,000 in universities. Most of the workforce has received on-the-job training and most technical workers have been technically trained before taking up their posts. In 1983-86, 4,000 managers of steel enterprises had undertaken vocational training and passed the state vocational examinations. In 1987-93, 156,800 managers, chief engineers, chief economists, chief accountants and leaders of management offices had been trained and passed the examinations. In the same period, 1.25 million technicians had undertaken engineering training.

Recruitment policy

Recruits for the steel industry are largely university and technical school graduates, veterans and young labourers of cities and nearby counties. The mix of the 191,000 new recruits in 1995 is shown in figure 5.

In accordance with policy, veterans are often the first to be employed, followed by persons with have higher educational qualifications and, after consulting local government, new labourers from the city or nearby countryside. Also, in cases where new facilities are constructed, labourers whose working land is taken over are also engaged. The educational level of all recruits is expected to be above that of middle school.

Safety and welfare

The steel industry pays close attention to the occupational safety and health of its workforces. MMI and all steel enterprises have a special department for establishing and perfecting occupational safety and health for steelworkers and for monitoring the implementation of the systems during production. After many years the industry has established a complete set of rules and standards of occupational safety and health for every production post, together with educational and training requirements so that the workforce can maintain good safety and health at work. Every enterprise has an annual health check for steelworkers and education programmes that have led to a greatly reduced incidence of accidents and occupational diseases.

Steelworkers who have an accident or suffer from an occupational diseases are treated and assisted financially according to state regulations. The enterprises themselves meet 85%-100% of medical expenses and provide all the pensions of their employees. In 1995 the industry had 777,500 retired people and paid $580 million in pensions. Together with reforms of the employment system, enterprises are now paying contributions towards accident, sickness. retirement and unemployment insurance for their workforce.

Occupational safety and health facilities in new or restructured steel works are always designed, constructed and put into operation in conjunction with the production facilities. Under the Labour Law of The People's Republic of China, 1994 occupational safety and health of the steel industry must be in place and the legitimate rights and interests of steelworkers are protected. Secondly, steelworkers who can no longer be employed are provided with technical training to help them obtain new skills so that they can find alternative employment. Part of their wages -- enough for basic needs -- continue to be paid. There were 156,000 surplus steelworkers in 1995.

Lessons learned

The current system of medical treatment is expensive and needs reform. In the future medical treatment will be under a social insurance scheme to which the state, enterprises and workers will contribute.

Most technical training of steelworkers is provided by the enterprises, which adds to their load, employment and wage bill. Considerations should be given to combining the vocational training of steelworkers with other training in society.

The burden of dealing with social unemployment detracts from productivity and competitiveness. Along with the reform of the political and economic systems, steel enterprises should not have to solve unemployment problems; this is a task for local governments.

Greater emphasis should be placed on recruiting and creating a workforce that can be competitive and of high quality. More attention needs to be devoted to persuading steelworkers to increase their skills and technical qualities on their own initiative and to recruiting people with sufficient and appropriate education and skills.

Updated by BR. Approved by OdVR. Last update: 28 September 2000.