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SCMP Reporter

CHINA's low production costs will continue to cushion domestic float glass-makers from fierce foreign competition, even after the country joins the General Agreement on Tariffs and Trade (GATT).

  Luoyang Glass chairman Guo Xiaohuan said: ''The tariffs will be lower, but the production cost of the overseas glass manufacturers will not be slashed.''   The low labour costs involved in producing glass in China were a major competitive edge internationally, he added.

   Imported glass products are subject to a 30 per cent tariff and their pricing is also higher than domestic products because of transport costs.

  Luoyang Glass, located in Henan province, has emerged as the first among a second batch of state-owned enterprises designated for flotation abroad to seek a listing in Hong Kong.

  The share issue, involving a Hong Kong public offer and international placement, is co-sponsored by China Development Finance and Salomon Brothers.

  Peat Marwick has been appointed as the accountant.

  Mr Guo said Luoyang Glass would issue more than 25 per cent of new shares for the H share offer and intended to set aside more than half of the new shares for the international offering.

  Luoyang Glass plans to raise $1.5 billion to $1.7 billion by early June.

  Established in 1958, the company is China's largest manufacturer of float glass, with an output of 309,000 tonnes last year. That amounts to 17 per cent of total annual float sheet glass output on the mainland.

  Other big float glass-makers include Shanghai Yashua Pilkington, a Sino-British joint venture listed in Shanghai, and Guangdong Float Glass.

  Mr Guo said imported glass products accounted for a minimal proportion of the domestic market because of their high pricing.

  For instance, Luoyang Glass products are sold abroad at US$250 to $300 a tonne, while their foreign counterparts sold similar products at US$400 to $500 a tonne.

  Mr Guo said the growth of the glass industry in the mainland had been linked to the country's economic growth.

  Domestic demand for float glass had been rising at an average of 11 per cent a year for the past 10 years, he said.

  Prices are between 10 and 20 per cent higher than last year.

   Last year the company made a net profit, before its corporate restructuring, of 260 million yuan (about HK$230.88 million) on turnover of 1.02 billion yuan under International Accounting Standards.

  Mr Guo said the shareholding company provided 90 per cent of the profit and sales.

  The company, which was officially formed into a joint stock entity last month, comprises three operating joint ventures.

  They are Tsingtao Taiyang Glass, Chenzhou Balta Co in Hunan and Longman Glass Factory in Luoyang.

  Luoyang Glass holds a 75 per cent stake in the Tsingtao venture which has been formed with a Hong Kong company, mainly for the purpose of exports.

  The venture, which will be operating by next year, will have an annual output of 150,000 tonnes.

  Luoyang Glass also plans to increase its interest in the Chenzhou plant to more than 50 from 17 per cent after the share listing.

  The plant will produce about 80,000 tonnes of glass a year when it begins operation in October.

  Mr Guo said the company would expand its production capacity for float sheet glass to 600,000 tonnes and raise capacity for high-value processed sheet glass products to two million square metres from the existing 500,000 sq metres in 1996.

  The expansion plan, which will be backed by the proceeds from the share offer, will boost the turnover contribution by more lucrative processed products to 20 per cent from the existing five per cent in 1996.

  The downstream products mainly target China's car-making and construction industries, taking advantage of increased consumption and the country's economic boom.

   The company provides more than 80 per cent of the safety glass used by Dongfeng Auto Corp, which is also on the shortlist of candidates scheduled for listing abroad.

  Luoyang Glass made US$7 million last year in foreign exports. It plans to boost its annual exports to US$20 million by 1996.

  The raw materials used in the production of float glass include soda ash, dolomite and silica ash, and account for 70 per cent of the company's total costs.

  All raw materials are bought from domestic suppliers.



No GATT fears for mainland glass-makers