By Ai Baojun By Ai Baojun 宝山钢铁股份有限公司 BAOSHAN IRON & STEEL CO., LTD.

By

Ai Baojun

By

Ai Baojun

宝山钢铁股份有限公司宝山钢铁股份有限公司BAOSHAN IRON & STEEL CO., LTDBAOSHAN IRON & STEEL CO., LTD

The macro-background of SOE reform

SOE reform review

Baosteel in transition

Contents


The macro-background of SOE reform --Economic development

0

20000

40000

60000

80000

100000

120000

1978 1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

GDP

90

95

100

105

110

115

120

GROWTH

GDPgrowth

From:China Statistics Abstract 2002(0.1bn yuan)

1.China achieved sustainable,rapid economic growth


•GDP 9.4%•Capital investment 16.6%•Fiscal revenue 12.3%•Fiscal expenditure 13.03%

•GDP 9.4%•Capital investment 16.6%•Fiscal revenue 12.3%•Fiscal expenditure 13.03%

Average annual growth

between 1979 and 2001

The macro-background of SOE reform -Economic development

Tertiary industry contribution to GDP increased from 23.7% in 1978 to 33.6% in 2001, and imbalance in economic development partially corrected

Tertiary industry contribution to GDP increased from 23.7% in 1978 to 33.6% in 2001, and imbalance in economic development partially corrected

From:China Statistics Abstract 2002


0% 20% 40% 60% 80% 100%

1978

1980

1985

1990

1995

1997

1999

2000

2001

First industry sector

Second industry sector

Tertiary industry sector

2.Economic growth quality improved notably

3.People’s living standard greatly improved

From:China Statistics Abstract 2002,(Unit : yuan)

•Average GDP per capita increased from 379 yuan(US$45)in 1978 to 7543 yuan(US$912)in 2001•Per capita net income increased by 3 times in urban household and by 4 times in rural household•The balance of individual deposits increased by 349 times•Average consumption expenditure per capita increased from 184 yuan(US$23)to 3608 yuan(US$430)。

•Average GDP per capita increased from 379 yuan(US$45)in 1978 to 7543 yuan(US$912)in 2001•Per capita net income increased by 3 times in urban household and by 4 times in rural household•The balance of individual deposits increased by 349 times•Average consumption expenditure per capita increased from 184 yuan(US$23)to 3608 yuan(US$430)。

宝山钢铁股份有限公司宝山钢铁股份有限公司BAOSHAN IRON & STEEL CO., LTDBAOSHAN IRON & STEEL CO., LTD The macro-background of SOE reform

– Economic development

0

1000

2000

3000

4000

5000

6000

7000

8000

1978 1980 1985 1990 1995 1997 1999 2000 2001

Per capi ta GDP

Personal expendi ture

Bal ance of i ndi vi dual deposi t

Unit:1bn yuan

4.Effective macro-economic policy propelled rapid economic growth

Under the situation of global economic downturn and more and more fierce competition worldwide,Chinese government focused on domestic market ,adopted effective policy of aggregate supply and demand and structural adjustment,resulting in sustainable economic growth.

Under the situation of global economic downturn and more and more fierce competition worldwide,Chinese government focused on domestic market ,adopted effective policy of aggregate supply and demand and structural adjustment,resulting in sustainable economic growth.


The macro-background of SOEs reform ---- Economic development

Boost domestic effective demand:•51 billion Yuan treasury bonds issued within 4 years to improve infrastructure ,such as road ,power station and telecommunication.

•7 interest rate cuts ; increase money supply and consumption credit.

Boost domestic effective demand:•51 billion Yuan treasury bonds issued within 4 years to improve infrastructure ,such as road ,power station and telecommunication.

•7 interest rate cuts ; increase money supply and consumption credit.

Enhance effective supply ：

•Adjust industry policy

Adjust ownership structure

•Standardize corporate governance

Enhance effective supply ：

•Adjust industry policy

Adjust ownership structure

•Standardize corporate governance


The macro-background of SOE reform ---- System transforming

Reform fields ：•Planning system•Investment system•Fiscal system•Reform of government institutes,education system,housing system.•Enterprise system reform

Reform fields ：•Planning system•Investment system•Fiscal system•Reform of government institutes,education system,housing system.•Enterprise system reform

Reform track ：•From 1978,starting with the farm land contracting out system.•In 1984,reform goal to establish a socialist planned economy was set.•In 1993,reform goal to set up socialist market economy system was put forward.•In 1997,clarified the socialist market economy system as “Give first place to state-ownership ,while multiple ownerships coexist

Reform track ：•From 1978,starting with the farm land contracting out system.•In 1984,reform goal to establish a socialist planned economy was set.•In 1993,reform goal to set up socialist market economy system was put forward.•In 1997,clarified the socialist market economy system as “Give first place to state-ownership ,while multiple ownerships coexist

Basic framework of a socialist market economy has been established.The progressive reform is adapted to Chinese domestic conditions ,and notable results were achieved in establishing the economic system with Chinese characteristics

1. Gradually promote economic reform



The macro-background of SOE reform ---System transforming

2.Reform result--- Non-state owned sector developed rapidly

Employment structure change

31. 91

78. 32

0

20

40

60

80

100

1978 1980 1985 1990 1995 1997 1999 2000 2001

Non-state owned

State-owned

In 2001,non-state owned enterprises represented 71.8% of a total of 169 thousand enterprises, providing jobs of 50% of the workforce ,and also serving as a major source of employment of the laid-off workers from SOEs.

In 2001,non-state owned enterprises represented 71.8% of a total of 169 thousand enterprises, providing jobs of 50% of the workforce ,and also serving as a major source of employment of the laid-off workers from SOEs.



The macro-background of SOE reform --System transforming

2.Reform result—Non-state owned sector developed rapidly

Ownership structure of enterprises 2001

0 20 40 60 80 100 120

Tax

Assets

Total loss

Total profit

Sales income

SOE

Stock company

Foreign invested

¼ of GDP comes from non-state owned sector,which is becoming the important propelling force of Chinese economic growth and urbanization.

¼ of GDP comes from non-state owned sector,which is becoming the important propelling force of Chinese economic growth and urbanization.

From:China Statistics Abstract 2002. (Unit:0.1 bn USD)

Chinese government adopted the policy of opening to the world,and cut tariff and non-tariff barriers sharply.Total amount of imports and exports has increased 25 times and the annual average imports and exports increases were 14.46% and 15.46% respectively within the past 23 years.

Chinese government adopted the policy of opening to the world,and cut tariff and non-tariff barriers sharply.Total amount of imports and exports has increased 25 times and the annual average imports and exports increases were 14.46% and 15.46% respectively within the past 23 years.

0 1000 2000 3000 4000 5000 6000

1978

1980

1985

1990

1995

1997

1999

2000

2001

0

1000

2000

3000

4000

5000

60001 2 3 4 5 6 7 8 9

I mport

ExportTotal


The macro-background of SOE reform ---The policy of opening to the world1.Foreign trade volume increases

sharply

From:China Statistics Abstract 2002.(Unit: 0.1bn USD)

Foreign direct investment(FDI)and international loans increased notably;foreign exchange reserve increased sharply。

Foreign direct investment(FDI)and international loans increased notably;foreign exchange reserve increased sharply。

宝山钢铁股份有限公司宝山钢铁股份有限公司BAOSHAN IRON & STEEL CO., LTDBAOSHAN IRON & STEEL CO., LTD The macro-background of SOE reform

--The policy of opening to the world2.International capitals influx

100

468. 8

2121. 65

0

500

1000

1500

2000

2500

1979-1982

1985 1990 1995 1997 1999 2000 2001

Loan

FDI

Forei gn exchange reserve

宝山钢铁股份有限公司宝山钢铁股份有限公司BAOSHAN IRON & STEEL CO., LTDBAOSHAN IRON & STEEL CO., LTD The macro-background of SOE

reform --Problems

1.Government faces challenges after WTO entryChina needs to accelerate its government function transformation process,laws and regulations suitable to a fully-opened economy need to be improved.

2.Reforms of investment system and financial system have a long way to go

The micro-economy vigor and efficiency have room to be improved ,and investment from private sector is to be further activated 。

3.Population increase and employment pressure The natural population growth and the rehiring of laid-off employees is putting increasing pressure on employment.

4.Inharmonious development between economy and environment

Economic growth has some negative influence on ecological environment.


SOE reform review

Baosteel in progress

Contents


SOE reform review----- Four phases


Goal:making SOEs be independent business entities with sole responsibility for profits or losses.

Goal:making SOEs be independent business entities with sole responsibility for profits or losses.

Initial Phase1978-1984

Initial Phase1978-1984

Full-implementationPhase1984-1992

Full-implementationPhase1984-1992

Regime innovationPhase1992-2001

Regime innovationPhase1992-2001

Core competence Building phase2001--

Core competence Building phase2001--Aiming at

promoting enterprise vigor; adopted decentralization and profit sharingpolicy

Aiming at promoting enterprise vigor; adopted decentralization and profit sharingpolicy

Aiming at establishing modern enterprise management system with clear ownership, definite rights and duties, and independent enterprise operation

Aiming at establishing modern enterprise management system with clear ownership, definite rights and duties, and independent enterprise operation

Aiming at cultivating international competitiveness of conglomerates by furthering enterprise system reform .

Aiming at cultivating international competitiveness of conglomerates by furthering enterprise system reform .

SOE reform review ---- I & II Initial and full-implementation phases


　　　　

• By taking the measures of decentralization and profit sharing,profit and tax swap,contracting out system ,charter business and a few enterprises’ share holding system pilot reform,workers were motivated and enterprise vigor were agitated .

•However,effective supervision and incentive system were not implemented in the enterprises

• By taking the measures of decentralization and profit sharing,profit and tax swap,contracting out system ,charter business and a few enterprises’ share holding system pilot reform,workers were motivated and enterprise vigor were agitated .

•However,effective supervision and incentive system were not implemented in the enterprises

Average staff income from 1978 to 1992

2878

2284

644506

2109

1681

0

500

1000

1500

2000

2500

3000

3500

1978 1980 1985 1990 1991 1992

SOECol l ect i ve

State-

From:China Statistics Abstract 2002(Yuan)

SOE reform review---- III Regime innovation phase


Background

•Adjust the ownership structure

•Keep the control powers of SOEs in sectors crucial to national economic life ,such as national security,military industry,public goods,and social welfare.

Background

•Adjust the ownership structure

•Keep the control powers of SOEs in sectors crucial to national economic life ,such as national security,military industry,public goods,and social welfare.

Reform measures

•Separate functions of government and enterprises;

•Break industry monopoly;

•Assets restructure;

•Encourage M&A,normalize bankruptcy , and carry out layoffs’ reemployment.

Reform measures

•Separate functions of government and enterprises;

•Break industry monopoly;

•Assets restructure;

•Encourage M&A,normalize bankruptcy , and carry out layoffs’ reemployment.

SOE reform review---- IV Core competitiveness building phase


Edges Disadvantages Measures

Domesticcomparison

•Profit and growth•Technology equipment•Capital strength•Employee quality•New product R&D and its growth•Policy support

•Exports and its growth•System and mechanism•Social responsibility and burden•Concept and culture

•System reform•Mechanism reengineering•Breed cultures•Going-out strategy

Globalcomparison

•Market growth and potential•Entrepreneurship •Labor cost

•Output efficiency•Capital strength•Technology equipment•Intangible assets•Financial service•Government efficiency•Citizen qualifications•Infrastructure

•Core competitiveness•Technological innovation•Marketing ability•Brand and patent•Financial initiatives•Public service•Integrity culture

Conglomerates’ competitiveness

SOE reform review---- Core competitiveness building phase


Reform measures

•Perfect corporate governance system ；

•Promote management transparency ；

•Change operational system completely;

•Enhance marketing ability ；

•Accelerate the establishment of technological innovation system;

•Foster ability of global operation

•Advocate business integrity ；

Reform measures

•Perfect corporate governance system ；

•Promote management transparency ；

•Change operational system completely;

•Enhance marketing ability ；

•Accelerate the establishment of technological innovation system;

•Foster ability of global operation

•Advocate business integrity ；

Goal

Build a batch of large companies and conglomerates with famous brands, intellectual property, and strong core competitiveness.

Goal

Build a batch of large companies and conglomerates with famous brands, intellectual property, and strong core competitiveness.


SOE reform review

Baosteel in progress

Contents


Began Began buildingbuilding

Phase3 put Phase3 put into useinto use

Phase1 put Phase1 put into useinto use

Phase2 put into Phase2 put into useuse

Allied with Allied with ShanghaisteelShanghaisteel

Baosteel Baosteel Ltd Ltd foundedfounded

Baosteel Ltd IPOBaosteel Ltd IPO

78.12 85.09 91.06 98.11 00.02 00.07 00.12 01.06 78.12 85.09 91.06 98.11 00.02 00.07 00.12 01.06

Baosteel in progress --Development track

Phase 3 assets Phase 3 assets acquisitionacquisitionWorld-class

production and technology facilities

World-class production and technology facilities •Sedan sheets

CR electric steel

•Appliance steel

•Tin plate(DI)•Pipeline steel Construction steel Shipping container steel

Seamless pipe slab

World-class BF and RH technology

World-class BF and RH technology

The 7th steel makers in the world with annual output of 11.5 mn tons and 19 mn tons of steel in the group.

The 7th steel makers in the world with annual output of 11.5 mn tons and 19 mn tons of steel in the group.


Provide high-tech and high-value-added products such as CR,HR,and seamless steel tubes

Provide high-tech and high-value-added products such as CR,HR,and seamless steel tubes

Baosteel in progress --Operation performance


Steel output

0

300

600

900

1200

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Steel output Sales income Total profit EBI DTA ROE EPS

11.51mn tons 29.2bn yuan 3.7bn yuan 8.4bn yuan 9. 74% 0.2yuan

Main performance indexes in 2001

Baosteel in progress --Domestic market position


Market share of main products

62%

30%

40%

58%

24%28%

24%

0%

20%

40%

60%

80%

Sedan sheets Oi l pi pe Steel f orhousehol del ect r i cs

Pi pel i nesteel

Ti n pl ate Coat i ngpl ate

HR

20002001

Baosteel in progress--Reform practice宝山钢铁股份有限公司宝山钢铁股份有限公司BAOSHAN IRON & STEEL CO., LTDBAOSHAN IRON & STEEL CO., LTD

•Core business of steel Baosteel Ltd. made IPO at Shanghai Bourse; Purchased good assets among group•Core competence Strategic Goal:Build Baosteel into the most competitive steel enterprise•System building Corporate governance,Independent directors, Transparency,Integrity•Internal management ESI(Enterprise system innovation)

•Core business of steel Baosteel Ltd. made IPO at Shanghai Bourse; Purchased good assets among group•Core competence Strategic Goal:Build Baosteel into the most competitive steel enterprise•System building Corporate governance,Independent directors, Transparency,Integrity•Internal management ESI(Enterprise system innovation)

Adapted to regime reform

•Strengthen strategic management: Seek opportunities to expand rapidly in domestic and international markets•Capital input:Invest to improve product quality,upgrade the product structure,and reduce cost•Management innovation:Implement the engineering of Enterprise system innovation(ESI) which orients business processes•Technological innovation strategy:Satisfying customers’ demands continually•Marketing tactics:Customer-oriented,rapid response,and technological service

•Strengthen strategic management: Seek opportunities to expand rapidly in domestic and international markets•Capital input:Invest to improve product quality,upgrade the product structure,and reduce cost•Management innovation:Implement the engineering of Enterprise system innovation(ESI) which orients business processes•Technological innovation strategy:Satisfying customers’ demands continually•Marketing tactics:Customer-oriented,rapid response,and technological service

Management changing measures

Enterprise system structure model of Baosteel

Standardization of applied regulations

Organization design /Change management /Culture building

Perfect and steady operations in pursuit of six sigma

CIS Platform

Production and

distribution core

business process

Corporate Value

Data warehouse/ Data development/ Knowledge management

Strategic analysis and decision making

Science&Technolo

gy managem

ent business process

Procurement

management

business process

Finance managem


Logistics managem


Human resource managem


Strategy manage

mentbusiness process

Baosteel in progress--Management practice



Baosteel in progress －－ Operate globally

Globalization of domestic

marketGlobalization practice

Global investment

Global cooperation

Utilization of global resources


•Ranked first in “Top 100 Chinese listed companies 2000” •Listed at the top of National Quality Control Award 2001•Ranked first in “MVA Ranking of Listed companies 2001”•One of top 50 enterprises which are most attractive to graduates in 2001•One of the 10 blue-chip stocks chosen by domestic investors in 2002

•Ranked first in “Top 100 Chinese listed companies 2000” •Listed at the top of National Quality Control Award 2001•Ranked first in “MVA Ranking of Listed companies 2001”•One of top 50 enterprises which are most attractive to graduates in 2001•One of the 10 blue-chip stocks chosen by domestic investors in 2002

•Standard&Poor’s valuation: BBB- positive in 2001•Ranked fourth among world-class steel-makers by WSD(World Steel Dynamics)in 2001 •World Class Organization by International Asia Pacific Quality Award Committee in 2002

•Standard&Poor’s valuation: BBB- positive in 2001•Ranked fourth among world-class steel-makers by WSD(World Steel Dynamics)in 2001 •World Class Organization by International Asia Pacific Quality Award Committee in 2002

Domestic evaluation International evaluation

2002 Posi t i oni ng of Worl d- Cl ass Steel makers

5. 0 5. 0 5. 1 5. 2 5. 35. 9 5. 9 6. 0

6. 3 6. 4 6. 67. 1 7. 4

0

1

2

3

4

5

6

7

8

Baosteel in progress --Outside evaluation

Baosteel in progress-- Outlook宝山钢铁股份有限公司宝山钢铁股份有限公司BAOSHAN IRON & STEEL CO., LTDBAOSHAN IRON & STEEL CO., LTD

Utilize competitive edges

• Advantageous geographic location• Fast-growing domestic market• Advanced technology and facilities• Sound cash-earning power• Continually low cost • Excellent executive management team• Excellent personnel team

• Advantageous geographic location• Fast-growing domestic market• Advanced technology and facilities• Sound cash-earning power• Continually low cost • Excellent executive management team• Excellent personnel team

Dig competitive potentials

• Consolidate leading position in steel industry•Promote technological innovation ability•Strengthen process management•Perfect incentive and supervisory mechanism•Accelerate shareholders diversification•Bring up talents of operating internationally •Enterprise culture building

• Consolidate leading position in steel industry•Promote technological innovation ability•Strengthen process management•Perfect incentive and supervisory mechanism•Accelerate shareholders diversification•Bring up talents of operating internationally •Enterprise culture building

To be the most competitive steel enterpriseTo be the most competitive steel enterprise


Thanks!

By Ai Baojun By Ai Baojun 宝山钢铁股份有限公司 BAOSHAN IRON & STEEL CO., LTD.

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Transcript of By Ai Baojun By Ai Baojun 宝山钢铁股份有限公司 BAOSHAN IRON & STEEL CO., LTD.