China Seminar Post 1: Baosteel

I was in Shanghai recently with a school fieldtrip and we had a visit to one of the manufacturing facilities of China’s largest state-owned steel manufacturing company, Baosteel.  It is the second largest steel producing in the world after a Luxemburg company called ArcelorMittal.  With an area larger than the city of Macau (itself 11.39 square miles), the whole complex was an astonishing and breathtaking sight to behold.  One of my initial impressions was the fact that despite being a massive manufacturing area, the place did not give off the odor of pollution one would expect in a place where heavy machinery and metal smelting is in operation.  It turns out, and quite contrary to the popular culture belief of Western nations, China is quite environmentally conscious and has taken steps to offset the pollution created by Baosteel by covering 45% of the factory grounds with trees and foliage.  In reality, we learned that Baosteel is a small city with a zoo, pool, and other amenities that serve the employees and their families who live on-site.  I could not imagine an American company doing so much to take care of their people, and remember that this plant is in a country that often has a reputation for being a “pollution haven” by its detractors in the rest of the world.  Personally, I did not smell much pollution in the area and regardless of how effective their efforts are, one ought to give them credit for trying.

We witnessed the miracle of steel processing from the safety of a catwalk above the fray of the factory floor.  As we stepped into the room, it seemed as though we had been transported to a scene in Atlas Shrugged.  The heaviest of heavy industry came together in a shower of sparks emanating from fiery red steel ingots and measuring initially about three feet wide, by 50 feet long, and a few inches tall.  Over the course of a quarter mile of machinery, rollers pressed it down until it was much thinner and several times as long.  Before the metal was completely cooled, it was rolled into a coil.  Having finished, it was shipped off as the raw material for the next producer to use in his manufacturing.  Not only does the product from Baosteel go around the world but is used in a wide variety of applications from weapons to automotive, marine components to soda cans, and many more.  As a matter of fact, the 1 Yuan coin is stamped from their alloy.

As we drove around the city-factory, I was struck by many things.  The scale of the machinery was beyond anything I had seen before.  The blast furnace was actually several buildings because one could not contain it, for example.  Baosteel has three port harbors.  One is for receiving iron ore from Australia and Brazil.  A second is for shipping the finished product all over the world.  A final one is for the removal of slag, the impurities taken out of the ore in the smelting process.  It is common practice to recycle this slag and our tour guide was proud to inform us that many buildings are constructed of concrete made from Baosteel’s unusable materials. 

Despite the rather sun-shiny view we were given by the Baosteel executive/tour guide, I did hear from other sources that it is plagued with some large, but not unsurprising in light of the fact that it is a government-owned institution, problems.  First and foremost, and as one might expect, it is a highly corrupt institution.  It turns out that the monsters of patronage politics and its twin crony capitalism are alive and well all over the world when business and government are mixed. 

Overall, however, the tour was an eye-opening experience by any account and I came away with a more complete appreciation of the Far East’s progress.  So often in economics classes we will hear that the Chinese are building towers and buildings at unprecedented rates.  But this comes alive when we are greeted by a forest of cranes upon arrival in Shanghai.  In the same way, we hear that manufacturing is booming.  But I can say with some confidence that one starts to leave the realm of knowing and enter that of understanding while walking through in a room heated and illuminated by glowing steel. 

I didn't take this picture, but this is the room we saw. The line of fire is a steel ingot being rolled.