Wenxian ZHANG

Baosteel provides raw materials for industry, such as this heavy machinery plant in Beijing. PHOTO BY JOAN LEBOLD COHEN.

Baosteel Group Corporation, located in Shanghai, is China’s largest iron and steel conglomerate, with a steelmaking capacity of about 30 million tons a year. In 2001, Baosteel became the primary supplier of steel to the Italian automaker Fiat, a step toward Baosteel’s goal of becoming a primary producer of automotive steel. In 2007, Baosteel was ranked 307 on the list of Fortune Global 500 corporations.

Officially named Shanghai Baosteel Group Corporation, Baosteel is the largest iron and steel conglomerate in China. A state-owned enterprise, Baosteel has played a significant role in the country’s economic development over the past thirty years. Ranked among the world’s top ten steel producers, the company has dominated the Chinese steel industry, accounting for some 7.8 percent of China’s total domestic steel production.

Baosteel’s Beginnings

Two events that took place in late 1978 marked the beginning of China’s reform era: the Third Plenum Session of the Eleventh Congress of the Chinese Communist Party held in Beijing, and the start of construction of a new, large-scale integrated steel plant in the Baoshan District near Shanghai. After the official conclusion of the disastrous Cultural Revolution, the new Chinese leadership under pragmatic Deng Xiaoping realized steel production was an essential component of China’s effort to modernize its industrial and economic infrastructure. Therefore a plan was approved to construct one of the most modern steel plants of the time, with advanced Japanese technology. Baoshan Iron and Steel was to be an exact copy of an existing plant in Kimitsu, Japan, operated by Nippon Steel.

Initially scheduled to be completed by 1982, the new plant suffered a series of setbacks that delayed the start of production until 1988. Soon after the facility was commissioned, however, it began to play a key role in China’s total domestic steel output. A year later, Baoshan Iron and Steel became the primary supplier to the Shanghai Automotive Industry Group Corporation. As the country’s model steel enterprise, Baoshan Iron and Steel enjoyed a special status, which enabled it to recruit from among the best engineers and managers in China, gain access to cutting-edge technology, and to receive large government contracts. For years, Baoshan Iron and Steel also greatly benefited from China’s economic expansion; indeed, steel production could not keep up with the huge demand from the domestic market.

Corporate Leadership

Among the inaugural team was Xie Qihua, a 1968 Qinghua (also spelled Tsinghua) University graduate who was recruited from the Shaanxi Steel Plant in 1978. Heading up the technical division, Xie rose through ranks to become the general manager in 1994. Under Xie, a domestic and international marketing arm, Baosteel Group International Trade Corporation, was incorporated in 1996. This strategic move not only extended Baosteel’s marketing network throughout China, but also enabled the company to begin international expansion. Two years later, Baosteel received authorization from the State Council to acquire the Shanghai Metallurgical Holding Group and Meishan Iron and Steel Company. As a result, the Shanghai Baosteel Group Corporation was formed to become China’s leading integrated steelworks. The new conglomerate was the largest steel producer in the country, with annual steel production of nearly 30 million tons. Throughout her tenure, Xie has successfully employed acquisitions and mergers as corporate strategy for expansion. She has been nicknamed “Woman of Steel,” “Steel Queen,” and “Iron Lady.”

Challenges in the New Era

In the 1990s, Baosteel found itself in competition with many new rivals, both foreign and domestic. The Asian financial crisis of 1997 proved to be a major challenge: When the regional economies collapsed, Baosteel’s revenues also took nosedive. When China was admitted to the World Trade Organization in 2001, the country’s steel industry opened up to foreign competition, which for the first time significantly threatened Baosteel’s dominance in Chinese domestic steel market. However, through successful mergers and acquisitions, Baosteel was able to remain profitable.

Recognizing the importance of business expansion and diversification, Baosteel began to expand beyond steel production into other businesses, such as trading, finance, engineering and technology, information technology, coal chemicals, steel product deep processing, comprehensive utilization, and more. In order to compete effectively in global markets, Baosteel formed a partnership alliance in 2001 with former domestic rivals in the Shougang Group and Wuhan Iron and Steel Group Corporation. In the same year, Baosteel signed an agreement with ThyssenKrupp of Germany. Baosteel has also developed a worldwide marketing network consisting of almost twenty trading companies at home and abroad. It also collaborates with international steel conglomerates, setting up strategic alliance with them to create synergy.

Main Products and Strategies for Expansion

In the twenty-first century, Baosteel has begun investing in developing new steel production technologies with the goal of becoming a premier research and development base for new processes, new technologies, and new materials in China’s iron and steel industry. Its current focus is on the production of steel plate and steel tubing. Baosteel’s objectives include building itself into a production center for automotive steel, transportation steel, stainless steel, household appliance steel, electrical steel, boiler and pressure vessel steel, food and beverage packaging steel, metal product steel, special steel, and high-grade construction steel. The company’s steel is also used for tools and equipment, springs and bearings, and in the aerospace and commercial aviation industries.

Baosteel is one of the first metallurgic companies in China to obtain an ISO 14001 certification, an international environmental management standard. Recognizing the importance of environmental protection, Baosteel endeavors to be a “green” steel company. Because the air quality in the plant has been rated as clean as that of a national sightseeing resort, the company has been designated the first national industrial sightseeing destination. More significantly, through implementation of an advanced quality management system in its manufacturing process, Baosteel’s main products have been recognized by several international certification institutions. The company has received ISO 9001 certification from the BSI (British Standards Institution) and QS 9000 certification from General Motors, Ford, and Chrysler, the U.S. “big three” automakers. Baosteel’s products have also obtained recognition from special classification societies in France, Germany, Italy, Japan, and Norway. Its steel products have been exported to over forty countries and regions, including Japan, South Korea, the United States, and the European Union. In 2001, the Italian automaker Fiat chose Baosteel to be its primary supplier of steel, marking a major step forward in Baosteel’s efforts to become a supplier to the global automotive industry.

Future Plans

The Chinese government authorized an initial public offering of Baosteel stock on the Shanghai Stock Exchange in December 2000. Although the listing was restricted to domestic investors, it raised some RMB¥7.7 billion, the country’s
largest public offering at that time. This strategic move not only had a major impact on Baosteel’s corporate culture, but also provided necessary capital for its investment in technology and future expansion. The public listing also set the stage for a future international listing, most likely on the Hong Kong Stock Exchange, which would open the company’s capital to foreign investors.

Within Baosteel, Shanghai Baoshan Iron and Steel Company generates more than half of the group’s total production. Other principal subsidiaries include Baosteel Shanghai No. 1 Iron & Steel Company, which produces mainly premium stainless steel; Pudong Steel Corporation, a plate producer; No. 5 Steel Corporation, a specialty steel products producer; and Shanghai Meishan Company and Ningbo Baoxin Stainless Steel Company. In 2007, Baosteel Group was ranked number 307 of the Fortune Global 500 corporations, with annual revenue of more than $22.6 billion. Looking forward, Baosteel has drafted ambitious plans for expansion. It is currently constructing a state-of-the-art facility in Zhanjiang, Guangdong Province, at a cost of $10 billion. Expected to come into production by 2010, this plant will make it possible for Baosteel to increase its annual production capacity to 40 million tons, a lofty goal that will make Baosteel the top steel producer in the world.

Further Reading

Baosteel Company (2006). Profile. Retrieved December 18, 2007, from http://www.baosteel.com/plc_e/index.asp

Baosteel Group Corporation (2006). Overview. Retrieved December 18, 2007, from http://www.baosteel.com/group_e/index.asp

Shanghai Baosteel Group Corporation. (2005). In J. Pederson (Ed.), International directory of company histories: Vol. 71. (pp. 327–330). Chicago: St. James Press.

Source: Zhang, Wenxian. (2009). Baosteel Group. In Linsun Cheng, et al. (Eds.), Berkshire Encyclopedia of China, pp. 161–163. Great Barrington, MA: Berkshire Publishing.

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