Page 212 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China
China and the United States have roughly the same The price of Chinese hot-rolled band steel was still off
landmass, China has 1.3 billion people to the United 46 percent of its July 2008 record high, but executives at
States’ 325 million. China needs an electricity system state-owned Baosteel, with a workforce of over 130,000,
that is much larger, so adding the renewable equivalent reported that the government continued to push to shut
of one entire U.S. electricity system is not enough to down high cost production capacity. This supply-side
replace coal in the near to medium term. To bridge the reform is slated to shut down in 2018 after three years
gap, China is rolling out new technologies to drastically of cuts. The focus will then turn toward improving the
reduce local air pollution and climate emissions from the efficiency of heavy industry by forcing consolidation.
nation’s remaining coal plants. If China is going to reduce Wilson claimed growth in Chinese steel production has
emissions substantially, more efficient coal generation been declining in 2017 amid the government’s efforts
has to be part of its equation, at least for the near to to reform the state-owned enterprises, while output
medium term (Hart, Bassett, and Johnson). in the rest of the world accelerated sharply. The result
is a nice scenario for steel stocks in general. Baosteel
All three of the world’s biggest coal users—China, Group may be the second largest steel company in the
the United States and India—ended up boosting coal world after ArcelorMittal, but it is the undisputed leader
mining in 2017, in an abrupt departure from last year’s in China where half of the world’s steel is produced.
record global decline for the heavily polluting fuel and Baosteel anticipates China’s annual steel demand will
a setback to efforts to rein in climate change emissions. drop 150 million to 200 million tons over the next ten
The reasons for 2017’s turnaround include policy shifts years (DeFotis).
in China, changes in U.S. energy markets, and India’s
continued push to provide electricity to more of its poor, Iron ore prices received a major boost in August 2017—
industry experts said. President Donald Trump’s role as a hitting its highest level in eight months—after upbeat
supporter of coal in the U.S. has played at most a minor Chinese data showed its construction sector in July
role. Whether coal’s comeback proves lasting, it has grew the most in almost four years. Ore with 62 percent
significant implications for long-term emission reduction content in Qingdao jumped 7.2 percent to $73.70 a ton.
targets. Industry representatives say the mining The gain coincided with the release of the official sub-
resurgence underscores coal’s continued importance in index for activity growth in China’s construction sector,
power generation, though analysts caution its long-term which hit to 62.5 percent in July, the highest level for
growth prospects still remain bleak (Brown and Daigle). that measurement since late 2013. It also comes among
tougher and more frequent environmental inspections
Iron by Chinese regulators. Despite both pessimistic and
conservative predictions about the direction iron ore
China’s iron ore mining industry revenue has been prices would be headed until 2020, the steelmaking
declining an average of 4.2 percent per year for the past material’s ongoing rally hasn’t come as a surprise for
five years. Revenues increased slightly 1.7 percent to experts at the United Nations Conference on Trade and
$112.5 million in 2017. Currently, over 3,600 enterprises Development (UNCTAD). They noted the upturn began
operate in the industry, with total employment of brewing and key indicators of demand and supply,
576,529 and expected total output of 1.3 billion tons seaborne trade and price prove so, as they all made
of iron ore in 2017. China covers over one third of its gains through the year. According to a report issued
domestic demand with imported iron. The iron ore price by UNCTAD, although Chinese consumption remained
has been falling since 2012, but rebounded in 2016. The relatively low in 2016. The outlook for iron ore prices is
industry is characterized by a large number of small rather positive, especially considering that producers
private miners whose operations are usually confined have reduced mining costs substantially over the past
within local areas. The four largest companies together four years. The mining industry as a whole, says the
only account for less than 5.7 percent of industry revenue report, now spends $22 less per ton than it did in 2013
in 2017. Development of the industry’s enterprises is due to tightened capital controls, renegotiated contracts
based on mineral resources in fixed locations so business- and the exit of high cost supply. The experts also note
scale expansion is limited. Domestic iron ore reserves are that annual exploration budget for iron ore fell in 2016
limited, and domestic ore grades are substantially low for the fourth consecutive year, with the estimated
compared with foreign mines such as those in Brazil and $685 million expenditure representing a decline of
Australia (IBISWorld, Iron). $460 million from 2015. Most of the fall, they say, can
212
China and the United States have roughly the same The price of Chinese hot-rolled band steel was still off
landmass, China has 1.3 billion people to the United 46 percent of its July 2008 record high, but executives at
States’ 325 million. China needs an electricity system state-owned Baosteel, with a workforce of over 130,000,
that is much larger, so adding the renewable equivalent reported that the government continued to push to shut
of one entire U.S. electricity system is not enough to down high cost production capacity. This supply-side
replace coal in the near to medium term. To bridge the reform is slated to shut down in 2018 after three years
gap, China is rolling out new technologies to drastically of cuts. The focus will then turn toward improving the
reduce local air pollution and climate emissions from the efficiency of heavy industry by forcing consolidation.
nation’s remaining coal plants. If China is going to reduce Wilson claimed growth in Chinese steel production has
emissions substantially, more efficient coal generation been declining in 2017 amid the government’s efforts
has to be part of its equation, at least for the near to to reform the state-owned enterprises, while output
medium term (Hart, Bassett, and Johnson). in the rest of the world accelerated sharply. The result
is a nice scenario for steel stocks in general. Baosteel
All three of the world’s biggest coal users—China, Group may be the second largest steel company in the
the United States and India—ended up boosting coal world after ArcelorMittal, but it is the undisputed leader
mining in 2017, in an abrupt departure from last year’s in China where half of the world’s steel is produced.
record global decline for the heavily polluting fuel and Baosteel anticipates China’s annual steel demand will
a setback to efforts to rein in climate change emissions. drop 150 million to 200 million tons over the next ten
The reasons for 2017’s turnaround include policy shifts years (DeFotis).
in China, changes in U.S. energy markets, and India’s
continued push to provide electricity to more of its poor, Iron ore prices received a major boost in August 2017—
industry experts said. President Donald Trump’s role as a hitting its highest level in eight months—after upbeat
supporter of coal in the U.S. has played at most a minor Chinese data showed its construction sector in July
role. Whether coal’s comeback proves lasting, it has grew the most in almost four years. Ore with 62 percent
significant implications for long-term emission reduction content in Qingdao jumped 7.2 percent to $73.70 a ton.
targets. Industry representatives say the mining The gain coincided with the release of the official sub-
resurgence underscores coal’s continued importance in index for activity growth in China’s construction sector,
power generation, though analysts caution its long-term which hit to 62.5 percent in July, the highest level for
growth prospects still remain bleak (Brown and Daigle). that measurement since late 2013. It also comes among
tougher and more frequent environmental inspections
Iron by Chinese regulators. Despite both pessimistic and
conservative predictions about the direction iron ore
China’s iron ore mining industry revenue has been prices would be headed until 2020, the steelmaking
declining an average of 4.2 percent per year for the past material’s ongoing rally hasn’t come as a surprise for
five years. Revenues increased slightly 1.7 percent to experts at the United Nations Conference on Trade and
$112.5 million in 2017. Currently, over 3,600 enterprises Development (UNCTAD). They noted the upturn began
operate in the industry, with total employment of brewing and key indicators of demand and supply,
576,529 and expected total output of 1.3 billion tons seaborne trade and price prove so, as they all made
of iron ore in 2017. China covers over one third of its gains through the year. According to a report issued
domestic demand with imported iron. The iron ore price by UNCTAD, although Chinese consumption remained
has been falling since 2012, but rebounded in 2016. The relatively low in 2016. The outlook for iron ore prices is
industry is characterized by a large number of small rather positive, especially considering that producers
private miners whose operations are usually confined have reduced mining costs substantially over the past
within local areas. The four largest companies together four years. The mining industry as a whole, says the
only account for less than 5.7 percent of industry revenue report, now spends $22 less per ton than it did in 2013
in 2017. Development of the industry’s enterprises is due to tightened capital controls, renegotiated contracts
based on mineral resources in fixed locations so business- and the exit of high cost supply. The experts also note
scale expansion is limited. Domestic iron ore reserves are that annual exploration budget for iron ore fell in 2016
limited, and domestic ore grades are substantially low for the fourth consecutive year, with the estimated
compared with foreign mines such as those in Brazil and $685 million expenditure representing a decline of
Australia (IBISWorld, Iron). $460 million from 2015. Most of the fall, they say, can
212
