CTII in mainland steel venture

CHINA Travel International Investment Hongkong (CTII) has entered into a joint venture to produce steel in China, signalling a departure from its strategy of specialising in travel and transport.

Under the agreement struck with the Economic Developing Corporation of Xu Ge Zhuang in Tangshan, Hebei province, Tangshan Guofeng Steel Co will produce steel and related products.

CTII will invest about 100 million yuan (about HK$135 million at official rates) for its 51 per cent stake.

This is CTII's first major investment project since its listing last November, which was the most popular after Denway Investment's.

CTII managing director Shen Zhuying yesterday said the company would be diversifying into various businesses which were ''potentially profitable'' and within its economic resources.

However, Mr Shen stressed that travel and freight would remain the group's main sector.

''CTII will only pick up new investment in a very selective way and under the right conditions,'' he said.

Mr Shen declined to say what other investments CTII was contemplating.

To eliminate the foreign exchange risk brought about by the fall in the yuan's value, CTII has been given approval by the Chinese authorities to invest in the steel project in yuan.

''The money will come mainly from the profits of Shenzhen Splendid China Development Co, in which CTII owns a 51 per cent interest,'' he said.

The co-operation period for the steel project is 30 years.

Construction of the plant, which will cover 290,000 square metres, will be done in two phases.

Construction of the first phase is already under way and trial production is expected by the end of the year.

Annual production of the first phase is targeted at 150,000 tonnes of steel and 100,000 tonnes of steel products.

The second phase, expected to produce 220,000 tonnes of iron annually, should be completed by the end of 1994.

Mr Shen said CTII would be able to recover its investment within 30 months after the completion of the two phases.

He said the price of construction steel in China had increased from 3,000 yuan per tonne in late 1992 and early 1993 to more than 3,700 yuan.

According to a feasibility study, steel demand in China for the next five years would continue to be strong, he said.