ABSTRACT

During Mao’s Great Leap Forward, steel was already a fundamental element in China’s economic priorities, whether for good or bad. Today, as China rapidly grows, import needs have followed suit, while international prices are progressively becoming conditioned to China’s strong demand for steel. The truth is that China’s steel industry lacks economies of scale and its industry concentration is much lower than in most countries: in 2004, only 26 steel manufacturers produced more than three million tons of steel,1 which is the minimum international threshold output for steel companies to reach economies of scale; the existence of many small mills has led to repetitive production and an irrational industrial structure. As a result, in 2003 the authorities shut down more than 60% of the country’s public steel companies: SOEs and collective-owned enterprises in the steel smelting sector were reduced to 63 (24% of the total). Similarly, SOEs and collective-owned enterprises in steel rolling were reduced to 486, accounting for only about 20% of the total number of firms within this subsector (N = 2,429) (Figure 10.1).