An iron and steel company in Lianyungang, Jiangsu province. E-commerce is expected to help steel firms avoid overcapacity and address low profitability concerns.
The China Steel and Iron Association and several industry partners joined hands to set up the Steel E-commerce Research Center on Monday, with an eye on upgrading and transforming the industry reeling from low profits.
The research center, initiated by the China Metallurgical Industry Planning and Research Institute, will conduct preliminary research for steel companies taking the e-commerce route and also provide suggestions to policymakers to help the industry develop in a healthy and regulated manner.
Li Xinchuang, head of the institute, said existing problems for the industry include vicious competition, inaccurate trading data and improper disclosure of customer information, all of which need to be solved and regulated urgently.
According to industry data, there are 178 steel e-commerce trading platforms at present in China, accounting for about 27.6 percent of the domestic online commodity trading platforms.
Last year, steel e-commerce platforms reported total trading volume of more than 60 million metric tons and transaction value of over 200 billion yuan ($32.34 billion), accounting for about 10 percent of the total steel traded in the country.
Wang Changhui, co-founder of Zhaogang.com, one of the leading steel e-commerce platforms in China, said his platform has about 40,000 monthly active users and they have created a huge database that can be used by other steel companies.
"The logistics cost of steel trading in China is much higher than in other countries," he said. "The platform will effectively cut logistics cost for steel traders by reducing intermediate links."
According to Wang, the platform had an average trading volume of about 3 million tons of steel every month. "We will provide reliable storage, processing, logistics and financing services for small steel traders, which will help them survive in the sluggish market," he said.
Nie Linhai, deputy director-general of the department of electronic commerce and information at the Ministry of Commerce, said China's e-commerce sector had embraced rapid growth in the past few years and it is time to consolidate the gains.
"E-commerce transactions have seen a 40 percent year-on-year growth from last year during the first quarter of this year. However, medium and small-scale steel companies still should do proper due diligence before they take the e-commerce route to avoid risks because innovation is easy to talk about but difficult to achieve," Nie said.
Gan Yong, vice-president of the Chinese Academy of Engineering, said taking the e-commerce route will help steel firms avoid the overcapacity situation and address low profitability concerns.
Closures, overseas investments illustrate plight facing local factories
Now is not a good time to be a Chinese factory owner. According to recent media reports, a growing number of local manufacturers are opening plants in the US as they seek to avoid the badge that comes with selling "Made in China" products.
Meanwhile, many other local factories are struggling with labor shortages, rising costs, overcapacity problems and thinning demand. In response to such pressures, low-end manufacturers are increasingly investing in Southeast Asia, where production costs are more competitive.
Both of these trends signal the need for change in China's manufacturing sector. Over recent decades, Chinese factories have become synonymous with low-quality, low-value-added products. Local manufacturers need to shake off this image by moving up the production chain. And with China's GDP slowdown weighing on the country's industrial sector, the need to advance is more pressing than ever.
According to reports, several of China's largest and historically most successful manufacturing enterprises have not been immune to the challenges brought by changing times. Silitech Technology Co, a major supplier for Nokia, has suspended production since November. At its peak, the Suzhou-based company had more than 10,000 employees, but has reportedly struggled since Nokia sold off its handset division to Microsoft last year.
In December, United Win Technology Co, also in Suzhou, Jiangsu Province, announced its closure due to a financial crisis. It had previously been a major supplier for Apple Inc and had also cooperated with Chinese smartphone brand Xiaomi. The company's closure is said to have left more than 2,000 workers unemployed.
Similar shutdowns are also said to be plaguing many of China's traditional manufacturing hubs - including Dongguan, Guangdong Province, and Wenzhou, Zhejiang Province.
Of course, not all of the worries facing factory bosses are bad. Improvements in Chinese labor laws have made workers more willing to fight for better pay and conditions. For instance, upwards of 2,000 workers at Yue Yuen, a shoe factory in Dongguan, reportedly protested recently in front of the company's gate for greater social security benefits. Yue Yuen is an assembler and producer for a host of big-name global brands, including Reebok, New Balance, Puma and Timberland.
But while China's manufacturing sector has been expanding at a rapid clip for decades, most local factories remain at the bottom of the technological food chain, where they subsist on rock-bottom unit pricing and outdated technologies. Without upgrades and reforms, producers will become even more marginalized. Those who cannot adapt will be weeded out by the market.
Chinese planners have suggested that the country's path toward a "new normal" pattern of development will necessitate greater innovation in the manufacturing sector. In a report issued Tuesday, research firm IDC described the agonies facing Chinese factory owners, while also putting forward predictions for the year ahead. During 2015, analysts at IDC foresee - among other things - the rise of intelligent factories, cloud computing and industrial robots (the latter of which could soon put many low-skilled Chinese workers out of jobs).
Chinese manufacturers will have to pursue these and other technological innovations if they want to stay in business. Fortunately, China is rapidly emerging as a research powerhouse. In 2012, the country overtook the European Union in terms of research spending as a percentage of GDP, according to a report issued in 2014 by the Organization for Economic Co-operation and Development.
The need to transform through innovation and research is particularly great among manufacturers focused on the highly competitive consumer market. If given the choice, many Chinese will purchase Japanese or South Korean-made goods. Such products typically carry high-price tags but are widely seen as being of higher quality than Chinese-made equivalents.
Chinese manufacturers need to focus especially on technologies that will help them become more specialized. They must also build brand value through higher-grade products. Ultimately, companies will have to choose development models that conform to their own conditions. Finding the right path forward won't be easy, but sitting still in changing times is a surefire way to fail.
China's machinery industry continued to expand in 2014 but at a softer pace due to sluggish domestic demands and piling inventories, new data showed on Wednesday.
The added value of the sector increased 10 percent year on year in the last year, slightly down from 10.9 percent in 2013, data from the China Machinery Industry Federation (CMIF) said.
Chinese machinery enterprises posted combined revenues from main businesses at 22.2 trillion yuan (3.62 trillion U.S. dollars), up 9.4 percent from a year ago. The revenues grew 13.8 percent in 2013.
Chen Bin, executive vice president of the CMIF, said the industry, still plagued by overcapacity, will likely continue to slow as they are confronted with weakening demands and fierce competition at home.
Haixin Iron and Steel Group, the largest private iron and steel enterprise in Shanxi Province, has started bankruptcy reorganization procedures, according to a local court on Monday.
The company, located in Wenxi county, had an annual steel output of five million tonnes and was ranked second only to Shougang Changzhi Iron and Steel Company, another state-owned enterprise, within the province. It is also the largest privately-owned company in Shanxi.
According to public data, the company recorded 10.46 billion yuan (1.71 billion U.S. dollars) in debt compared with 10.07 billion yuan in its account.
Production was suspended on March 18, due to industry overcapacity, a stagnant market, tightened credit and management issues.
In August, four lenders to Haixin filed bankruptcy plans to the Yuncheng Intermediate People's Court, aiming to reorganizing five companies within the group.
The remaking of China's manufacturing sector hinges on production with a higher degree of automation and artificial intelligence, experts said at a two-day manufacturing forum ended Saturday.
China's factory sector needs to undergo a gradual process of shifting away from its extensive reliance on labor, Luo Jun, CEO of the Asian Manufacturing Association, said on Friday at the Seventh Annual Conference of Asian Manufacturing Forum held in Weifang, East China's Shandong Province, as he advocated the modeling of Germany's implementation of "Industry 4.0."
The term Industry 4.0, first introduced at Hanover Fair in 2011, has since become the cornerstone of Germany's industrial strategy pushing for computerization of traditional industries including manufacturing.
With the application of new technologies in manufacturing, the Chinese economy will experience a new round of restructuring and recovery, Luo believes.
His comments mirror rising concerns over China's vast manufacturing sector, with recent data revealing worrisome prospects.
The official Purchasing Managers' Index (PMI), covering mainly big State-owned enterprises, edged down to 51.1 for August from 51.7 the month before, while the HSBC PMI, focusing on smaller private enterprises, shrank to a three-month low of 50.2 in August.
Experts also downplayed concerns about the replacement of manpower by automation and robots in the world's most populous country.
Speaking in an interview with the Global Times during the forum on Friday, Bernhard Thies, chairman of the Board of Directors of the DKE, the official German expertise center for electro-technical standardization, also said the application of automation and artificial intelligence that will be seen in China's industry sector will not cause big job losses.
A robotized factory sector expected in the future may weigh on the unemployment rate during a specific period of time, but it is unlikely to be a cause of sustained unemployment as new ideas and professions would be created to tackle job losses due to the prevalence of automation, according to Thies.
"I don't think it could really be a problem, because for the time being I believe that these new trends will still be [happening in] niche industries," Bernardo Calzadilla-Sarmiento, director of Trade Capacity Building Branch at the United Nations Industrial Development Organization, told the Global Times in an interview Friday, trying to allay fears of the predominance of machine over man.
But he noted that in the meantime the government should be responsible for designing policies and measures that would foster job-creating activities as well as sustainable and inclusive development of the factory sector.
China will close more steel and cement plants this year than originally planned to deal with overcapacity, the industry ministry said.
The nation decided to eliminate 28.7 million tons of annual steel capacity and 50.5 million tons of cement capacity this year, the Ministry of Industry and Information Technology said in a statement today.
That compared with an initial target of 27 million tons for steel and 42 million tons for cement as outlined by Premier Li Keqiang in his government report earlier this year.
The country's crude steel output rose to a record high of 779 million tons last year.
China has been phasing out old and inefficient capacity in its industrial sector as part of efforts to revamp its growth model and fight pollution.
The ministry also said 420,000 tons of annual aluminum capacity and 115,000 tons of lead smelting will be eliminated this year.
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