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The steel industry has been identified as a key sector for China to promote international capacity cooperation.
The "Guiding Opinions on Promoting International Capacity and Equipment Manufacturing Cooperation" propose that based on domestic advantages, the steel industry should promote foreign capacity cooperation through methods such as exporting complete sets of equipment, investment, acquisition, and contracting projects. This aims to build ironmaking, steelmaking, and steel production bases in key countries with good resource conditions, strong supporting capabilities, and great market potential, thereby driving the export of steel equipment. The State Council recently issued the "Guiding Opinions on Promoting International Capacity and Equipment Manufacturing Cooperation" (hereinafter referred to as the "Opinions"), strongly promoting international cooperation in steel capacity. Against the backdrop of the accelerated advancement of the Belt and Road Initiative, the steel industry, which has been struggling on the edge of profit and loss in recent years, is expected to welcome a good opportunity for rebirth. Li Xinchuan, director of the Metallurgical Industry Planning and Research Institute, believes that transferring capacity overseas is a concrete practice to alleviate excess capacity, which is beneficial for domestic enterprises to be closer to raw material sources, reduce transportation costs, and promote steel exports. Regarding the investment opportunities in steel generated by the Belt and Road Initiative, the industry generally believes that many countries along the route have huge demand in infrastructure, capacity, and equipment manufacturing cooperation, promoting international capacity cooperation in steel not only helps to alleviate the relatively excessive domestic capacity but also enhances the image and international influence of Chinese manufacturing. The overall excess has already appeared. Currently, the capacity surplus situation in China's steel industry is very severe, and the range of excess has expanded from flat products to long products, from ordinary products to high-tech products, and from major markets to remote areas. With the price of rebar falling more than that of flat products in 2014, not only is there an excess of flat products, but there is also an excess of long products for construction. Steel has developed from a structural surplus in flat products to a comprehensive surplus in both flat and long products, Li Xinchuan stated. At the same time, not only ordinary products are in excess, but high-tech products are also experiencing surplus, with the price of silicon steel dropping from over 40,000 yuan to currently over 10,000 yuan; with the operation of a large number of new projects, the price of automotive sheets may also follow the path of pipeline steel. It is worth mentioning that the surplus of steel capacity has extended from major markets to remote regional markets. The prices of steel in Xinjiang, Sichuan, and Kunming have significantly decreased, with the overall price drop exceeding that of major eastern markets, especially in Xinjiang, where the steel price level is currently the lowest in the country, with a capacity utilization rate of only 40%. This surplus trend may next expand to regions like Guangdong in South China, triggering a series of chain reactions. In the context of comprehensive capacity surplus, China's steel consumption has already reached a peak plateau. According to statistics, in 2014, China's steel consumption reached a peak of about 702 million tons, and it is expected to decline to 678 million tons by 2020, only 630 million tons by 2025, and further decrease to 567 million tons by 2030. The timing for going out is mature. As an industry with serious capacity surplus, the steel industry has been identified as a key industry for China to promote international capacity cooperation, which is quite expected. According to the "Opinions", it is necessary to rely on domestic advantages to promote foreign capacity cooperation in the steel industry. Combining the structural adjustment of the domestic steel industry, it aims to build ironmaking, steelmaking, and steel production bases in key countries with good resource conditions, strong supporting capabilities, and great market potential through methods such as exporting complete sets of equipment, investment, acquisition, and contracting projects, thereby driving the export of steel equipment. By 2020, a capacity cooperation mechanism with key countries will be basically established, and a number of key capacity cooperation projects will have made significant progress, forming several overseas capacity cooperation demonstration bases. Li Xinchuan believes that under the new normal, "going out" in steel not only can digest excess capacity and improve resource security capabilities but also can protect the environment and promote steel exports. Currently, China's steel capacity is severely surplus, with crude steel capacity reaching 1.25 billion tons, and low growth, low prices, low efficiency, and high pressure have become new characteristics of the industry. Transferring stock overseas is a realistic path for the entire steel industry to resolve the contradiction of excess capacity. Strengthening international capacity cooperation can also reduce international trade frictions and promote China's steel exports. In 2014, China's steel exports reached 93.78 million tons, and steel exports have become a powerful tool for digesting capacity. However, the large-scale export of low-priced steel has also intensified trade frictions, with multiple countries intensively launching anti-dumping investigations against Chinese steel products. In Li Xinchuan's view, transferring capacity overseas can not only bring enterprises closer to raw material sources and reduce transportation costs but also lower the chances of Chinese steel exports encountering international trade protectionism, making it an effective means to promote exports. "Going out" in steel can also enhance China's resource security capabilities. China's steel industry has weak resource control, low domestic iron ore resource endowment, and a self-sufficiency rate of less than 30%, along with high costs and weak competitiveness. Conducting various forms of overseas iron ore resource exploration and development with mining enterprises and establishing long-term stable and reliable iron ore supply bases abroad has become the main way to improve resource security capabilities. According to statistics, from 2006 to 2014, Chinese enterprises' overseas iron ore equity investments exceeded 25 billion US dollars, participating in the exploration, design, and construction of 35 large overseas iron ore projects. However, last year, China's overseas equity mineral output was about 73 million tons, accounting for only about 8% of the total annual import volume; in contrast, Japan's overseas equity iron ore imports in recent years were about 74 million tons, accounting for 50% to 60% of its total annual iron ore imports. Under the current high-pressure domestic environmental protection situation, transferring steel capacity overseas is also an important way to protect the environment. Looking at the entire steel industry, the total emissions are large, and there are still instances of exceeding emission standards. A considerable number of enterprises' environmental protection equipment levels or process controls do not meet standards, and some regions have already exceeded their environmental carrying capacity. The implementation of the new environmental protection law has brought tremendous pressure to the steel industry, which is both a major consumer of energy resources and a major emitter while being in a state of excess capacity. The central government requires high-pollution industries such as steel to reduce production to protect the environment, and a large amount of advantageous stock can be transferred overseas, Li Xinchuan said. Risk prevention and control is crucial. The overseas journey of China's steel enterprises has not stopped since the 1990s. Li Xinchuan believes that at this stage, China's steel enterprises have already possessed comparative advantages in policies, talents, and technology when going out. However, at the same time, there are still many bottlenecks restricting China's steel going out, including a lack of overseas experience and overall strategy, outdated investment concepts, overly strong desire for control, single investment methods, and a lack of senior talents. Among them, due to the lack of an overall strategy, blind investment and herd behavior often occur. In response to the systemic risks faced by Chinese enterprises going out, such as political, legal, and environmental risks, Li Xinchuan suggests that domestic enterprises should conduct thorough due diligence, combine appropriate business models, and align project conditions with the political environment while strengthening the construction of soft power such as channels and paying attention to fulfilling social responsibilities. Researcher Zhang Lin also believes that when Chinese steel enterprises choose investment targets, they should not only pay attention to their resource and market conditions but also focus on the political situation and legislation of the investment destination country, and conduct thorough assessments and mental preparations for every detail involved in the project to avoid returning empty-handed due to failure to reach an agreement.