China's iron and steel industry development and its implications for Australia

Abstract

With steel production expanding from 70 million tonnes in 1991,
to 80 million tonnes in 1992 and the official forecast by the
Chinese government that steel production will reach 100 million
tonnes by the year 2000, China's iron and steel industry is now
facing one of the world's most acute iron ore shortages. This
study has indicated that there is a big gap between the supply
of steel and demand at present in China. The author of this
thesis firmly believes that this gap will increase as the Chinese
economy begins to develop further.

Australia has long been seen as a main raw materials supply base
for the world steel industry. Increasingly it has been recognised
within Australia that its future economic development will be
closely linked to that of Asia. As the largest country in Asia,
China's future economic development will have important
implications in Australia's economic development. It is therefore
necessary to have a thorough understanding of the nature and
development of China's iron and steel industry. The future
implications for the further development of Australian exports
of raw materials will be closely to the Chinese economic
development.

The most efficient way of identifying these implications appears
to be by the way of a survey of the development of China's iron
and steel industry. This will help to facilitate Australia's

Australia's understanding of the Chinese market. In turn, this
may facilitate the modernisation of China's iron and steel
industry at more accelerated pace.

The scarcity of qualified iron ore supply is an important barrier
to the further development of China's iron and steel industry.

The main aim of this thesis has been to review the development
of the China's steel industry and to explore the ramifications
of tht development to Australia's future entry into China's
steel industry.

Chapter 1 provides an historical overview of economic development
in China.

During the 1980s, major economic reforms have been introduced in
China with an open door policy. They were designed to transform
the system of Chinese economic relations from one of bureaucratic
co-operation, to one of indirectly regulated market transactions.

These reforms incorporated an enlargement of enterprise
management decision-making, through expanding the autonomy of
enterprises. The effects have been to free state-owned industries
from centralised control in order to make them more market
oriented. The reforms give state enterprises the right to make
direct contact with overseas companies, resulting in greater
trade, investment and technical co-operation.

The author's research findings indicates that rapid economic
development in China will increase steel production and demand.
'Chinese steel consumption was expected to grow rapidly towards
the end of the decade. China had set a target of 7.2 per cent in
real growth terms per annum and finished steel consumption was
expected to grow at 10.8 per cent per annum. This could be
achieved, if steel consumption increased from around 40 million
tons to 81 million tons by 1990' (Faintly and Xin, 1985, p.71).
This rapid growth will carry significant implications for
Australia.

Chapter 2 provides an historical overview of the Chinese iron and
steel industry. Nine stages are identified which parallel the
development trends of the Chinese economy and reflect the close
link with the development of the Chinese economy.

Chapter 3 examines the basic characteristics of China's iron and
steel industry. The issues to be addressed will be:
capacity
local small, medium-size steel works steel imports and
exports
technical equipment
varieties and specifications
labour productivity
energy consumption
This chapter also provides a general outline of steelmaking technology.

Chapter 4 describes the Chinese iron and steel industrial
organisation and raw material supply. We commence with a general
outline of China's iron ore resources. Which is presented to draw
attention to availability and quality of local sources of supply
with particular emphasis on the low Fe content and wide
distribution of Chinese iron ore.

Another factor to be considered is the raw material base, coupled
with the industrial layout, which has resulted in the main iron
and steel companies being located in the areas of
An Ben
Jin Dong
Panxi
Yangtze River Zhong Xia You
Ta! -Gu-Lan
Ba! Yuan E Bo
E dong

Chapter 5 focuses on the two aspects of steel demand forecasts
and development strategy options.

A summary is provided of previous forecasts of China's steel
demand. All the forecasts have one thing in common that China's
steel demand will grow substantially in the future. It appears
that the main area of argument revolves around the expected rate of growth. The forecasts tend to indicate that there is a wide
gap existing between the demand for steel and its production.

The author's analysis indicates that by the year 2000, China will
become the largest consumer and producer of steel in the world.
Therefore there is no doubt that a wide gap will exist between
the supply of steel and its demand in the future.

Three options for the development of China's iron and steel
industry have been summarised by Faintly and Xin (1985), Strategy
Rehabilitation and expansion of existing enterprises. Strategy
Expansion of production capacity from existing enterprises by
using higher grade imported ores. Strategy 3. Expansion of
capacity by building new large scale enterprises.

Chapter 6 analyses the implications for Australia of the
development of China's iron and steel industry. The effects on
Australia's economy arising from this development are both direct
and indirect.

The direct effect would be that China will need to import more
iron ore, pig iron, and ingots. In this respect, there is clearly
a considerable opportunity for Australia's economic future.

The indirect effect come from Australian exports of iron ore to
Japan, Taiwan and South Korea. This will result in an increase
exports of finished steel to China from these countries with a
flow on effect that will indirectly increase Australia's exports of iron ore. Production increases of pig iron and crude steel
in Taiwan and South Korea will increase Australian exports of
iron ore to China.

Future indications are that steel production in Japan and Europe
is declining. As the result of China's industrial development,
the steel industry will become more important in the future. This
development will provide increasing opportunities for Australia
to participate in China's steel industry.

Date of Award	1994
Original language	English
Supervisor	Peter Blunt (Supervisor)