Beijing's Capital Iron & Steel, also known as Shougang, enjoys a central place in the affairs of the nation. This was exemplified in a decision to shut down temporarily the furnaces and coal-fired power plants so as to ensure a better atmosphere in the capital for the gala celebrating 50 years of the People's Republic on October 1.
The five squat chimneys in the centre of the vast complex stopped belching fumes for two weeks from September 21 and the city breathed more easily for a time.
Over the 50th anniversary period, all the stops were pulled out to ensure that the entire workforce of 230,000 received wages and benefits in full. In normal times this is not so. As many as one-fifth of those on the payroll are said to be owed money as the steel giant struggles to stretch its cashflow to service its large debt repayments, meet input costs and reward its dependants. Managers have been accosted and there has been sporadic unrest as a result of Shougang's difficulties in paying its way.
Thousands of Shougang workers have taken to the streets in response to hardship, not to protest but to buy and sell goods.
The decision to close the plant shows the extent to which politics, and not market forces, still shape Shougang's destiny. After two decades of the socialist market economy, the order to shut down the steel mill for the duration of the anniversary was overtly political. The effect on profitability and the operational cost of the moratorium did not factor highly in the decision-making process, although the government is understood to have compensated the company for lost revenues.
Shougang pioneered the socialist command economy even before the People's Republic was founded. According to the firm's official history, the employees of the Shijingshan Steel Firm, Shougang's forerunner, responded energetically to the new China. The workers, turned masters by the firm's liberation in late 1948, exceeded the new state's quota within the year.
With the help of Soviet experts, Shijingshan was a star performer in the first five-year plan, launched in 1953. Production rose from below 300,000 tonnes of pig iron to more than 2.6m tonnes of iron and steel as the workforce followed Chairman Mao's exhortation to "march towards science". The base had been laid for a burst of unalloyed expansion that vaulted the firm into the ranks of the country's top steel enterprises, with operations spanning every aspect of the steel business, from mining to cutting.
Pioneer of reform
At the time of Deng Xiaoping's reform and opening-up policies, Shougang ?the firm had been renamed in 1967 – was chosen as one of eight pilot enterprises for the new era. It was transformed in 1982 by two developments. Zhou Guanwu, a close friend of Deng, was named chairman and Communist Party boss of Shougang, and a profit-sharing scheme with the government was amended to mandate ever-increasing profits.
As a result Shougang embarked on a more extravagant investment programme that for such a time resulted in a rapid increase in output. It more than quintupled its output between 1979 and 1994 and was set to raise production above 10m tonnes by the turn of the century.
A visit to the company by the ailing Deng in 1992 provided the impetus for what turned out to be a final orgy of investment for the firm. It was then China's biggest steel producer and on the brink of becoming the first to expand overseas, bidding more than three times as much as its nearest rival in a tender for a Peruvian iron mine.
Soon after the visit, Zhou received per-mission to expand into banking and pushed ahead with plans to build a steel mill in Shandong province capable of producing 10m tonnes of steel a year by 2000.
As Chinese enterprises embarked on a splurge of excess investment that has since mired the country in deflation, Shougang led the pack. Zhou's plans ran far ahead of steel-making. The company dabbled in property investment and looked to expand into other industries. It even hoped to build a factory capable of producing 300,000 cars a year.
Much of Shougang's success stemmed from its unique relationship with the central government. Its profit contribution scheme capped increases in tax payments below inflation and it was given far greater latitude than its rivals to sell its products at the market rate.
The empire unravelled within two years. Zhou resigned under a cloud of scandal in February 1995 after his son, Zhou Beifang, head of the company's Hong Kong subsidiaries, was arrested for economic crimes. The next year, the son was convicted for accepting and giving bribes.
While scandals and poor fundamentals have diminished Shougang's prestige, it remains at the forefront of the latest schemes to further China's reform programme. The company has been selected as one of eight top steel producers that will be listed on the stock market this year, with the intention of raising Yn7bn. Proponents of the scheme say the proceeds are needed to help recapitalise the sector.