No. 2 China Steel Works Reviving

The Baoshan Iron & Steel Works, which has been China’s biggest and most embarrassing white elephant, is about to spring into life.

After six years of preparations, endless wrangling, the cancellation of several contracts and the expenditure of more than $4.5 billion, the plant will start operations in September. A festive ceremony is being planned in honor of the occasion.

The new plant, on the south bank of the Yangtze River just north of Shanghai, will produce 3 million tons of iron and steel a year in its first phase of operation. It will use the latest in modern technology and will be the second-largest iron and steel plant in China. The largest is the Anshan Steel Works.

But when the huge No. 1 blast furnace begins roaring, it will also serve as a monument to what Chinese officials have admitted was poor planning resulting from their overeager drive for economic development. “The decision to start this project was not well planned strategically and was wrong,” the Chinese magazine Outlook acknowledged.

It is a little-remembered fact in the West, but China’s current economic reform program is really the second effort at modernization undertaken by the group of leaders who came to power after the death of Mao Tse-tung.

First Program in 1977

The first attempt, Chinese economists have since conceded, was a bust. In 1977, China, just emerging from the Cultural Revolution, drafted an ambitious development scheme to construct 120 large-scale projects--steel plants, coal mines and power stations among them--by 1985.

The earlier modernization program, in other words, was devised along conventional Stalinist lines: China was hoping to develop its economy through massive state investment in heavy industry.

It didn’t work. China simply did not have the money to finance that sort of development or the know-how to be able to plan it. By 1981, many of the projects had been either scaled back or canceled.

In their current modernization drive, Chinese leaders have tried a radically different approach: They have attempted to reduce the role of centralized state planning, are de-emphasizing heavy industry and are relying greatly on foreign investment.

The Baoshan plant is a relic, a symbol of the earlier, frustrated effort at modernization.

Construction at the site--chosen because it was on the Yangtze, near the coast and close to Shanghai’s factories and skilled work force--began in December, 1978. But the site turned out to be a disaster, and officials have since conceded that they had made no feasibility study.

For one thing, it turned out that the site had soft, silty soil. At first, the pilings put down for the plant simply kept on sinking. Engineers were eventually forced to build the foundation on enormously expensive 60-yard-long steel pilings.

Furthermore, China decided to buy the principal equipment for the plant from Japan and insisted on having the most advanced technology available. But this technology requires a higher grade of iron ore for steel-making operations than is available in China.

So it turned out that the plant would have to import its ore from other countries--primarily Australia, Brazil and India. The ships that carry this ore are too big to cross a sand bar at the mouth of the Yangtze, so a costly unloading and transshipment facility had to be built further south on the coast at Ningbo.

Finally, Shanghai officials complained that the Peking government had not studied the environmental effects of putting the steel mill at Baoshan.

Winds Into Shanghai Feared

During a 1980 session of the National People’s Congress, China’s Parliament, delegates from Shanghai pointed out that winds from the northwest would blow sulfur dioxide from the steel plant into downtown Shanghai. They also voiced fears that the mill would increase water pollution and waste-disposal problems in Shanghai.

In 1980, in the face of all these problems, Chinese authorities held up construction of the initial phase of the plant and suspended the second phase of the project entirely--canceling contracts that had already been signed.

But too much money had already been invested and, after two years of re-examination, authorities decided to go forward with both phases of the steel mill.

Aside from the $4.5-billion construction cost, the project has been costly in other, intangible ways: the friction with foreign companies, particularly Japanese suppliers, whose contracts were canceled; the conflicts between Shanghai and the central government, and the embarrassment for Chinese planning officials.

Now, workers at Baoshan are busy getting the plant ready for its September opening. Coal (from Shanxi and Anhui provinces in China’s interior) and iron ore have been unloaded at the wharf and put into storage.

‘Water Will Be Strictly Treated’

Officials at the plant say as much as 15% to 20% of the total investment was spent in solving environmental problems. “The Baoshan plant pays much attention to danger of air and water pollution,” a plant spokesman said. “The water will be strictly treated.”

The plant will have 23,000 workers, some of whom have been recruited from other iron and steel plants throughout China. About half of the workers will live in specially constructed housing beside the plant, and the rest will commute from elsewhere in the Shanghai area.

Most of the equipment for the initial phase of the project--including the wharf, blast furnace, coke ovens and blooming mill--have been imported from Japan. A seamless-tube mill was imported from West Germany.

Japanese and West German technicians now live at the Baoshan guest house adjoining the plant, and more than 900 Chinese workers have been sent to Japan or West Germany for training.

Chinese officials say they expect the second phase of the plant, which will have the capacity to produce another 3 million tons of iron and steel a year, to be completed by 1989 or 1990. Baoshan authorities say they have now decided to construct the second blast furnace by themselves, without importing foreign technology.