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SCMP Reporter

BEIJING Shougang Corp plans to invest about 10 billion yuan (HK$9.31 billion) in two new projects.

  The largest steel manufacturing group in China has also reactivated its trading arm, China Shougang International Trade and Engineering, to spearhead overseas expansion.

  Zhang Yanlin, chairman of Shougang Corp's Hong Kong operations, said the group would invest seven billion yuan in a new hot-strip mill in Beijing with a production capacity of four million tonnes of steel plate a year.

  It will also spend more than two billion yuan on relocating a steel refinery unit to the outskirts of Beijing for environmental reasons.

  The capital commitment comes after Shougang Corp halted ten projects which cost 10 billion yuan at a time when it was said to be plagued by a financial crisis due to over-expansion.

  Mr Zhang admitted the group had shelved a plan for a huge steel complex in Shandong, designed to have annual production capacity of five million tonnes.

  Playing down the impact of the departure of its former chairman Zhou Guanwu and his son Zhou Beifang, Mr Zhang said the Shandong plant was held up in light of China's demand for steel products.

  He said the group was adjusting its product structure in a bid to enhance quality and expand capacity.

  'The new investments underscore that Shougang pays more attention to efficiency,' said Mr Zhang after the annual general meetings of Shougang companies in Hong Kong.

  He expected the group would produce 8.9 million tonnes of steel this year, compared with 8.23 million tonnes last year.

  Shougang Corp has been developing rapidly in recent years under the blessing of patriarch Deng Xiaoping. Its most eye-catching deal was the purchase of an iron mine in Peru for US$300 million, a price far exceeding the next-highest bid.

  The group has only hit a bad patch since February after the resignation of Zhou Guanwu and the arrest of Zhou Beifang for alleged economic crimes.

  Despite speculation that Shougang Corp's overseas expansion will be thwarted, Mr Zhang said the group would not change its policy of expanding overseas.

  Instead, he said it had recently reorganised to strengthen its foreign trade business, referring to the increasing importance of China Shougang, founded in 1992.

  The company was only transformed into the group's primary overseas vehicle after the new management took over this year.

  China Shougang will also oversee the group's transport, guest houses, tourism, overseas engineering operations and the interest in Peru iron mine and equity interests in the five Hong Kong-listed companies.

  As a vice-chairman and general manager of China Shougang, Mr Zhang said he would co-ordinate the operations between the overseas trading arm and Hong Kong listed companies.

  But for overseas acquisitions of iron mines, he said the group had started purchasing new facilities instead of old facilities.

   As Shougang Corp's contract responsibility system was to expire at the year's end, he said the group would pay tax in accordance with a tax rate, but its 'three privileges'' would remain intact.

  The 'three privileges' are autonomy in investment, finance and trade, granted by the State Council in August, 1992, after Mr Deng's visit in May that year.

  Some commentators have blamed Shougang Corp's freedom enjoyed under the contract responsibility system, which allows an enterprise to pay a fixed rate of return and use the balance at the discretion of the management, for grooming what they call Zhou Guanwu's 'own little kingdom.' 



Shougang plans $9.3b deals