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Commodities

Factbox: A history of China's steel sector

(Reuters) - Steel has been central to the self-image of China since the famous mills of Anshan and Benxi in China’s northeast rustbelt were liberated from Japanese occupiers in 1945.

Following is a potted history of the sector since 1949:

THE SOVIET MODEL, 1949-57

1949 steel output: 158,000 tonnes

1957 steel output: 5.35 million tonnes

In 1949, China had only 19 steel mills and seven working blast furnaces. Total output in war-ravaged China stood at just 158,000 tonnes, six times smaller than 1943, when Japanese-built mills in Anshan and Benxi worked at full tilt.

If China’s new rulers were to succeed in developing the sector, they would have to do so from within the ruins of the northeast. What followed was a rapid period of expansion based on the model of the Soviet Union.

Total production increased to 1.349 million tonnes by 1952, breaking the 1943 record set during Japanese occupation.

In the first Five-Year Plan period of 1953-7, a total of 3.45 billion yuan ($546.40 million) was spent on steel industry infrastructure, 13.9 percent of the national total, bringing total output to 5.35 million tonnes.

THE GREAT LEAP FORWARD

1958 steel output: 5.9 million tonnes

1965 steel output: 12.2 million tonnes

“It is not good for us to name ourselves as the most superior in the world,” said Chairman Mao in 1958, “but it is not bad to become the number one steel producer.”

Thus began Mao’s obsession with overtaking the West. Mao predicted China would produce 150 million tonnes of steel a year by 1967, more than the United States.

In the Great Leap Forward campaign that followed, industry was encouraged in every corner, field and backyard of China. Urged to do everything to meet state targets, farmers melted down tools, pots, doorknobs and cutlery to produce steel in ramshackle backyard smelters, leaving their crops to rot in the fields. State leaders, encouraged by false reporting by regional officials, proceeded to raise steel output targets still further.

Soon enough, China was suffering from crippling famine, and the number of people working in steel mills fell from 3.7 million to 757,000 from 1960-62. Thousands of expansions were canceled, and targets were reduced.

Mao was sidelined and from 1963 to 1965, the government set about trying to restore the economy. Demand for steel from the agricultural and defense industries soared and output reached 12 million tonnes.

THE CULTURAL REVOLUTION (1966-1976)

1966 steel output: 15.2 million tonnes

1976 steel output: 20.5 million tonnes

Chairman Mao plotted his return to power through the “cultural sphere”. What followed was a country-wide rebellion of Maoist youth against state schools, bureaucracy and industry, including steel mills.

From 1967 to the end of 1968, thousands of mills were occupied, “struggled against” and closed down. Total steel output in 1967 stood at 10.2 million tonnes, a third lower than 1966, and fell further to nine million tonnes in 1968. From 1966 to 1968, smelter utilization rates dropped 18.1 percent.

By August 1968, China’s cabinet, or the State Council, was forced to step in, ordering steel enterprises to cease the “struggle” and restore output.

In early 1970, they were asked to restore their original management structures and their original names. Company officials sent to the villages to learn from the countryside would be restored to their original positions. Projects suspended during the Cultural Revolution were put back on track.

Output recovered, reaching 13.33 million tonnes in 1969 and 17.79 million tonnes the following year. By the early 1970s, demand was also rising quickly and China was having to import more than a million tonnes a year from Japan.

THE GREAT OPENING-UP 1977-

1977 steel output: 23.7 million tonnes

2015 steel output: 803.8 million tonnes

What China could not achieve by Stalinist state planning or Maoist revolutionary enthusiasm, it achieved by letting a million private-sector smelters bloom.

But after decades of rapid expansion, the country is now saddled with more than 300 million tonnes of surplus capacity and a supply glut blamed by critics for threatening the survival of steel producers across the globe.

Beijing has repeatedly tried to “restructure” the sector with new product standards, environmental requirements or higher industry entry thresholds, and has now pledged to shed 100-150 million tonnes of capacity.

The overcapacity problem was aggravated by a 4 trillion yuan ($620 billion) stimulus package launched in 2009, which led to a surge in steel demand and a flow of cheap credit that allowed mills to expand. Production rose 310 million tonnes from 2009 to 2014, while capacity increased even more sharply.

Chinese steel output is now widely believed to have peaked. It hit 803.8 million tonnes last year, down 2.3 percent on the year, the first annual decline since 1981, but accounting for just under half of the world’s total.

Sources: China Iron and Steel Association; National Bureau of Statistics; China’s Global Role by John Franklyn Copper (Hoover Institution Press, 1980); Cold War International History Project (Woodrow Wilson Center, 1995); Xinhua; Phoenix Online History Channel ($1=6.47 yuan)

Reporting by David Stanway; Editing by Neil Fullick

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