China eyes advanced capacity cooperation

On April 28, China’s foreign minister Wang Yi and Governor of Hebei Province Zhang Qingwei attended the 11th Lanting Forum held at the Ministry of Foreign Affairs, calling for international community to get into mutually beneficial international cooperation on capacity. At the forum, Hebei Province’s competitive industries such as steel, cement and glass were “marketed” and caused the enthusiastic responses of participants’ from developing countries.

Organized by national ministries and commissions and showed by competitive industries, this is a high starting point of Hebei, a traditional industrial province, to build a new model of international cooperation on capacity, and is also a new opportunity for industry with spare capacity in many regions and even across the country to accelerate the “docking” with international market.

Capacity “docking”

“The South Africa’s Mamba Cement Project is progressing smoothly. By the end of May, the civil engineering and installation will be completed. It is expected that the project will conduct test run in July.” Chen Ying, deputy general manager of Jidong Development Group, who is busily working in America, said when accept the transoceanic telephone interview by Economic Daily’s reporter that the production line project (with 6 mw low temperature waste heat power generation) invested and constructed in Limpopo Province of South Africa with a daily capacity of 2800 tons of cement clinker is a project of total investment ZAF 1.75 billion and Chinese shareholder holding 51 percent. This is a production and processing project that China invests the most currently and with the most advanced technology. It is constructed only in a period of 12 months and will create 600 direct and indirect employment opportunities locally after completion.

Jidong Development Group, whose business mainly focuses in cement production and equipment manufacturing, is the largest cement company in north China. In recent years, the enterprise has been developing the international cooperation on capacity and harvested a lot. Currently, Zambia’s project of 1 million-ton annual output of cement has completed preliminary work and is expected to start construction this year; In May, the Group will take over by the BOT mode a state cement factory in Myanmar and invest in constructing new production line. In addition, projects in Oceania and Latin America are in the early stage of the work and some will start cooperating this year.

Hebei Iron & Steel Group, the largest iron and steel enterprises in China, has set foot on the land of Africa as well. Relying on the copper and iron ore resources of South Africa PMC Mining Company in control and through cooperation with South Africa Industrial Development Company and the China-Africa Development Fund, HBIS launched the construction of a 5 million-ton iron and steel project in South Africa. In first phase, a capacity of 3 million tons long profile products plans to start construction in 2015 and put into production by the end of 2017; in second phase, a production line with capacity of 2 million tons steel panel, H profile steel or steel rail plans to begin production in 2019. This is by far the largest whole process iron and steel project that China ever invested overseas.

“On the key point of China carrying out the strategy of ‘one belt and one road’, important progress has been made in nonferrous metal enterprises’ ‘going out’.” Zhao Wuzhuang, director of Policy Research Office of China Nonferrous Metals Industry Association, said that Indonesian has abundant nonferrous resources and its economic development is at the early stage of rapid rise. Some Chinese backbone nonferrous enterprises have seized the opportunity in Indonesian to enter into capacity cooperation in nickel iron, stainless steel, alumina and electrolytic aluminum.

The first phase project of Tsingshan Industrial Park constructed by Zhejiang Tsingshan Holding Group in Indonesia Sulawesi has put into operation after a construction period of 22 months, forming an annual output of 300,000 tons of nickel iron production capacity. The first phase of a 3 million-ton alumina project jointly invested USD1 billion by Shandong Hongqiao Aluminum and Indonesia will complete its construction in the fourth quarter of this year. The project adopts completely China’s technology and is the largest aluminum smelting project so far hold by China abroad.

Win-win from high quality capacity complementation

There is no lack of attention at home and abroad on China’s international capacity cooperation in industries with spare capacity. Someone has inadvertently affixed the labels such as “transferring contradictions of excess capacity” and “exporting backward capacity and pollution”, what is the truth?

As a big steel province, Hebei’s steel production accounted for about a quarter of the country. Through struggling to advance the strategic adjustment of industrial structure, Hebei Province has eliminated all the backward steel production capacity last year. Zhang Qingwei announced on the Lanting Forum that according to the standards of industry, backward capacity in steel industry of Hebei Province does not exist already. Now the industry standards that are higher than the requirements of the nation and stricter than the energy consumption and emission standards in developed countries are performed.

“This is the cooperation of competitive capacity, not the transfer of ‘backward capacity’ and the output of the ‘pollution’”. Yu Yong, chairman of HBIS, said that “going out” is not due to excess capacity in the iron and steel enterprises, but the enterprises that have had the absolute power and good abilityIt is understood that HBIS has a high-quality steel production capacity of 50 million tons and nearly 3000 independent intellectual property rights. Its main energy conservation and environmental protection indexes reached the international advanced level and the Tangshan Iron & Steel Group under HBIS is recognized as the most clean steel mills in the world, forming a brand effect in terms of green manufacturing with the world influence. In addition, HBIS still holds the world’s largest iron and steel trader. At present, HBIS is committed to build the world’s most competitive iron and steel enterprises and speed up the implementation of global industrial layout with resources, market and customers. Its South Africa project aims at integrating China’s high quality steel production capacity with South Africa’s abundant resources to save resources, protect the environment, promote the local employment, and achieve the “localization of resource utilization” and “localization of resource effect”.

“Our cement project has used a large number of advanced technologies for energy conservation and environmental protection that promoted the development of small- and medium-sized enterprises in South Africa. The Industry and Trade Ministry of South African government gave a reward of ZAF 170 million cash and tax breaks with ZAF 25 million cash having arrived now.” Vice president of Jidong Development Group Chen Ying said that after years’ implementation of energy reserving and emission reduction projects, the coal consumption and power consumption of JDG’s cement production line is now much lower than that in Africa, and the labor demand is small. The first cement waste heat power generation project constructed by JDG in South Africa can reduce 17,000 tons of industrial coal per year and reduce 50,000 tons of carbon dioxide emissions. Thus, for the first time Chinese company obtained the premium issued by South Africa government.

The preliminary success of South Africa Mamba Cement Project has cause the attention of the international financial institutions. The second project invested by JDG in Africa, Zambia Buffalo Cement Project, thus was participated by IFC, a wholly owned subsidiary of the World Bank, as one of its shareholders and lender. IFC provided equity and project financing of USD 200 million, accounting for 60 percent of the total project investment. IFC said after reviewing the project of Zambia that its equipment level, environmental protection level and safety level are in line with international standards and the actual situation in Africa and IFC is willing to build a pan-African cement investment platform jointly with JDG to meet the needs of African countries for cement.

Cooperation promotion at right time

“The promotion of international capacity cooperation can benefit not only the development of China’s industry but also the south-south cooperation, as well as the implementation of ‘one belt and one road’ strategy and the promotion of the economic development in developing countries and the balanced development of the world economy.” Zhu Jimin, executive vice president of CISA, stressed that we will carry forward the international capacity cooperation from the strategy level of mutual benefit and common development.

In fact, as the world’s second largest economy and industrial power, China has both the responsibility and ability to car ry out international industrial cooperation including capacity cooperation. After reform and opening of more than 30 years, China’s basic raw material industries have completed the accumulation of capital, technology and talent and grown into competitive industries. Their production of iron and steel, nonferrous metals and cement are the highest in the world, meeting basically the requirement for the development of national economy, at the same time a batch of internationally leading enterprises have formed. With the adjustment of China’s economic growth, a certain size of spare capacity is emerging in related industries when they are getting bigger and stronger. For example, the steel industry has now a surplus capacity of 200 million tons. Under the condition of the domestic market relatively saturated, it has become a strategic choice for enterprises’ self-directed upgrade to achieve on a global scale the rational flow of capacity and optimal allocation of resources, seeking scale growth and benefit promotion. This is also in line with the objective law of international industry development.

“Capacity surplus in China is only relative. Seeing from the world, many developing countries and emerging markets has a strong demand for steel and building materials. Their production in these countries has been short both in number and variety, thus capacities have become a scarce resource there.” Chen Ziqi, deputy director of the Metallurgy Building Material Development Division of China International Engineering Consulting Corporation, said that for example, China’s steel exports alone numbered more than 93 million tons last year, but it is unrealistic clearly to meet external demand relying on exports alone.

Related expert believes that as the construction of “one belt and one road” is carried out and the implementation of “three nets and one industrialization” (high speed railway network, expressway network, regional airline network and infrastructure industrialization) constructed jointly by China and Africa, China’s competitive industries will see an uncommon opportunity to march towards the world. Among 64 countries along “one belt and one road”, 70 percent of them are net steel importer and a dozen countries (mainly in central Asia, Southeast Asia and Eastern Europe) have rich iron ore resources. At the same time, iron and steel industry in most of these countries is weak, some even blank, thus it is an urgent need to carry out capacity cooperation. Population in Africa is 900 million but the cement capacity is only less than 200 million tons, making the price of white cement in central region reaches more than USD700 per ton and that of ordinary Portland cement is around USD 200 to 400, about six times of the price in China. There is a huge market space.

At present, many developing countries are in the early stage of economic take-off or industrialization. They are badly in need of foreign capital, equipment and technical support to translate the resource advantage into the development power. While China has entered the mature period of industrialization and had powerful strength and rich experience in the development of the iron and steel, nonferrous metals, cement, glass and other industries that can be complementary with developing countries in advantages when forming periodic cooperation. In particular, on the global industrial chain, China’s spare capacity of competitive industries possesses advanced and applicable equipment, mature and reliable technology and higher cost performance that is adaptable to the purchasing ability and the level of technology, management and supporting in developing countries, thus is beneficial to form the industry support as soon as possible and strengthen the capacity of their independent development.

“Now, the foreign countries have needs, the government has guidance, the industries have conditions and the enterprises have power, it is the right time to promote the international capacity cooperation.” Chen Ziqi’s judgment represents the consensus of many insiders and indicates the broader and more robust development of international capacity cooperation.


Editor: Danna Z


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