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Demolished furnace shows China’s resolve to tackle overcapacity

Updated: Sep 1,2016 9:43 AM     Xinhua

HOHHOT — Disassembly work began on a major blast furnace in North China’s Inner Mongolia autonomous region on Aug 31, marking the beginning of the end of more than half a century of operation.

The demolition team set to work just before noon, preparing the Baogang Group’s No 2 Blast Furnace for a dismantling project that will take over two months.

With an annual production capacity of 1.33 million tonnes of iron, the furnace, which was built in 1959, is the largest to be demolished since China initiated supply-side reform to tackle industrial overcapacity last year.

Wang Shengping, executive deputy general manager of Baogang, said it was once capable of producing enough iron to build an Eiffel Tower in three days.

“It has contributed a lot to economic development in the border and minority regions,” said Wang.

Now that the furnace has been decommissioned, emissions of dust will be reduced by 2,800 tonnes and carbon dioxide by 57 tonnes annually, he said.

Seeing the crane move in to begin the demolition work, Wang Guizhong, 48, had mixed feelings. He worked for the furnace for 14 years, advancing from furnace man to gas fitter and eventually chief of his team.

“I really hated saying goodbye,” he said. “But I support the decision, for the sake of the company’s development and structural upgrading.”

Wang and 130 of his colleagues will be reposted to other furnaces owned by the group, while those who were employed on the material supply and downstream product manufacturing departments will be transferred to the group’s other companies, which are not related to iron and steel.

Because of the demolition, more than 2,400 workers will be transferred or retire, according to the group.

In 2015, more than half of China’s steel companies reported total losses of 65 billion yuan ($9.7 billion). Once a profit engine for China, iron and steel boomed while infrastructure investment fed demand for commodities such as steel and cement. As the economy cools, the production glut has become as burdensome as it was once bountiful.

Thus, China will cut steel capacity by 100 to 150 million tonnes by 2020, including 45 million tonnes in 2016. As of late July, 47 percent of the annual target had been achieved, according to data released by the National Development and Reform Commission (NDRC).

The central government has organized 10 inspection teams, which will be sent to provinces, regions and municipalities to promote the cut.

Moreover, the Ministry of Finance in May announced 100 billion yuan in aid for steel and coal companies to find new jobs for its laid-off workers.

FORCED TRANSFORMATION

Iron and steel, coal mining, cement making, ship building, aluminum and flat glass have the ominous titles as having the most excess capacity in China. According to a UBS report earlier this year, the six industries account for around 12 percent of industrial employment, and a 20 percent reduction in capacity may result in the loss of 3.56 million jobs.

An Zhongping still remembers the day when his cement plant was razed to the ground in 2013. The firm he worked for was among the first 18 cement plants to be demolished in the city of Luquan, Hebei province.

“Many of us couldn’t hold back the tears,” he recalled.

With some 100 workers with families to support, An felt the calling; he should start his own business, and be his own boss. Inspired by the vast tracts of walnut trees in his local area, he decided to build a walnut milk factory on the former site of his cement plant.

“I had to learn from the ground up,” he said.

To encourage entrepreneurs to start their new businesses, local governments have organized tours to Beijing, Tianjin, and the provinces of Zhejiang, Jiangsu and Anhui. With the government offering to be a guarantee, An secured a 3-million-yuan loan from the bank, and imported the production equipment he needed from Taiwan.

The plant currently produces 800 cans of walnut milk per minute, making 600 million yuan in annual output value — 20 times the annual sales revenue the cement plant made. The workers he hires has also increased to 500.

Guo Keming, who works at An’s factory, has self-taught himself food industry management and sales skills. In his words, he is growing and transforming together with the plant.

Guo, 45, had worked at the cement plant for over two decades, and had, initially, considered finding another job in cement production when the plant closed.

“I quickly realized that other cement plants may also face the same fate as my old firm,” he said.

ONWARDS, UPWARDS

While some factories in sectors struggling with overcapacity are looking to transform, their employees have been encouraged to start their own businesses.

In Shanxi province, the provincial government in late July released a circular offering subsidies to coal workers-turned-entrepreneurs.

Each startup will be granted 2,000 yuan a year for three years to go toward office space fees, and 1,200 yuan per trainee if the business will retrain ex-coal workers.

Existing coal firms have also been encouraged to set up startup centers where workers can explore their business ideas with the support of preferential conditions, according to the circular.

Shanxi Coal Electricity Group Co., Ltd. established such a center this year, welcoming workers to test their business proposals. Every business has free office space, and receives a grant of 2,000 yuan if it employs a laid-off worker for more than a year.

Wang Jun, a former worker of the coal company, decided to try his hands at opening a cleaning business after his salary halved to 2,000 yuan per month.

“With a pair of twins to raise and my mortgage, I did not want to have to keep asking my parents for help,” he recalled.

Wang invested over 60,000 yuan in the cleaning company in 2015, hiring five cleaners. It now has an app, and he is planning to expand business via the internet.

Although he has yet to turn a profit, he is confident about the future of his business. “It must be better than the pittance I brought home at the coal company,” he said.

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