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July 23,Baosteel Co., Ltd.The company announced that it would acquire 50% of Baosteel-Nippon Automotive Steel Co., Ltd.'s shares held by Nippon Steel Corporation for RMB 1.758 billion. Nippon Steel Corporation thus withdrew from its joint venture with Baosteel. As Japan's largest steel manufacturer, Baosteel was established in the 1980s with the full assistance of Nippon Steel Corporation. Over the past half century, the status of the two companies has undergone a huge reversal. China's steel industry has risen sharply with the rise of national strength. The transition from harmony to competition between the master and the apprentice has become the best footnote to the changing times.

The end of this period of history came quietly, and only a notice from Baosteel and the official website of Nippon Steel revealed the details. Today, I will write a short article to record this past event for those who are unaware of it and for those who are aware of it to remember.

"At the most tense time, Baosteel had 108 negotiation tables open at the same time. There are two figures that are enough to amaze people: one is that more than 13,000 negotiations were introduced; the other is that 320 tons of technical data and drawings were digested."

Text/ Ba Jiuling (WeChat public account: Wu Xiaobo Channel)

In September 1977, when Ye Zhiqiang, Vice Minister of the Ministry of Metallurgy, led a delegation to Japan for an inspection, he noticed two small details.

The Japanese waiter brought the delegation members a can of beer they had never seen before. It was made of steel and opened with a pull. The Japanese rolled the steel to be as thin as paper. The delegation took the domestically produced car provided by the embassy. The car was slow and could not catch up with the Japanese car. After accelerating, the car broke down. Ye Zhiqiang said that the car was made of hot-rolled steel plates, which were thick, heavy and rusty, while the Japanese car was made of cold-rolled steel plates, which were light and beautiful.

More than a month later, Ye Zhiqiang returned to China and reported his investigation to the central government. Before telling the two details, he screened a short film donated by Nippon Steel: a neat factory, a few workers, a few people operating steel production in front of computers, and huge blast furnaces and converters. Someone at the scene asked, "Is this true?"

Nippon Steel in the film was formed by the merger of two Japanese companies and is the leader of Japan's steel industry. Ye Zhiqiang compared the steel production of China and Japan in his inspection report. In 1960, Japan's steel production was only 3 million tons more than China's. Thirteen years later, in 1973, Japan's annual steel production was 119 million tons, more than four times that of China.

Ye Zhiqiang concluded that China's metallurgical industry lagged behind Japan by 20 years. His investigation became the catalyst for the birth of Baosteel.

In October 1978, Deng Xiaoping visited Japan. One of the purposes of his visit was to learn from Japan's experience in achieving modernization. At Kimitsu Steel Plant under Nippon Steel, he visited the hot rolling workshop and blast furnace.

On October 26, 1978, Deng Xiaoping visited the Junjin Steel Plant

Source: Reference News

Deng Xiaoping said: "We have poor management skills and want to learn. Let's make a gentleman's agreement and guarantee that we will be taught and that we will learn well. The teachers will guarantee to teach well and the students will guarantee to learn well!" He said to the president of Nippon Steel Corporation, Inayama Yoshihiro, who was accompanying him on the visit, "Please help us build a factory in this way."

At this time, the Chinese were eager to learn new technologies, introduce new equipment, and push backward industries such as steel to a new level.

At that time, when several overseas inspection teams visited Japan and Europe, they found that industrialized countries showed a trend of structural adjustment and industrial transfer, and capitalist countries were in a period of depression, with excess products, technology and capital, and were eager to find a way out. Japan and Western European countries were vying to discuss trade cooperation with China.

The international environment has also changed, and these countries believe that China's development is conducive to the stability of Asia and the world, which provides opportunities for China to rapidly expand the introduction of new technologies and complete sets of equipment.

On December 21, 1978, China National Technical Import & Export Corporation and Nippon Steel signed the General Agreement on Ordering Complete Equipment from Shanghai Baoshan Iron & Steel Works, fully introducing Nippon Steel's equipment and technology. On December 23, the day after the closing of the Third Plenary Session of the 11th Central Committee, Baosteel, which would later become the king of Chinese steel, laid its first foundation in Shanghai.

December 23, 1978, groundbreaking ceremony for Baoshan Iron and Steel Plant

Image source: Internet

As a representative of the partner Nippon Steel, Yoshihiro Inayama said at the groundbreaking ceremony: "The technical level and construction speed required for the Baosteel project are unprecedented in the history of world steel industry construction. This project is likely to encounter many difficulties that were not anticipated in the initial stage during the construction process."

He said that if the two sides work closely together, they will definitely overcome all difficulties.

A month before the groundbreaking ceremony, the number of people on the construction site reached tens of thousands, and preparations were complete. But Nippon Steel was a little anxious while waiting for the groundbreaking. Chen Jinhua, then deputy secretary of the Shanghai Municipal Committee of the Communist Party of China, recalled that the other party was worried that the turmoil would come back and affect the start of construction.

After the normalization of diplomatic relations between China and Japan in 1972, Inayama Yoshihiro held talks with Chinese leaders and built a steel plate production line for the Wuhan Steel Plant. "They were too impressed by the shutdowns and armed struggles that occurred during the 'special period,'" Chen Jinhua wrote.

Baosteel's technology introduction negotiations, "from inquiry, quotation to contract signing, took only a little over a year, and received more than 30 companies and more than 100 professional delegations from 7 countries. More than 2,100 groups and more than 4,500 people came to China for negotiations.At the most intense time, 108 negotiation tables were set up at the same time. There are two figures that are enough to amaze people: one is that more than 13,000 negotiations were introduced; the other is that 320 tons of technical data and drawings were digested. "

A documentary tells several stories from the negotiations.

The overall design task of Baosteel was undertaken by Nippon Steel as the general contractor. The first round of negotiations discussed the general design plan, that is, the planning of the entire factory area. The plan proposed by Nippon Steel was a "C"-shaped circular layout from the production process from raw materials entering the factory to finished products leaving the factory, which was compact and simple and could greatly save land.

Baosteel raised objections and proposed modification suggestions to the Japanese side: Baosteel's general layout design needs to take into account the possibility of expanding to an annual output of tens of millions of tons in the future. Expansion space and 800-meter-wide development land should be reserved at the raw material terminal and the south side of the factory respectively. This creates conditions for Baosteel's future expansion.

Image source: Internet

During the equipment selection negotiations, the Japanese side proposed to use the Kimitsu plant as a model, but Baosteel learned that the Yawata plant and Oita plant under Nippon Steel had more advanced technology, so it requested to introduce equipment from these two plants, emphasizing that the contract stipulated the introduction of the most advanced technology. The negotiations were deadlocked for more than a month until Baosteel expressed its consideration of Western partners, and Nippon Steel gave in.

Including Nippon Steel and its related companies, a total of 10,000 Japanese personnel visited China. Later, Baosteel also sent its employees to Japan to learn technology. Japanese writer Yamazaki Toyoko also created the novel "Son of the Earth" based on this material.

Baoshan Hotel next to the steel plant construction site is where Japanese personnel live, with a permanent population of 1,000. They were shocked by the Chinese employees' enthusiasm for learning.

A Japanese who was sent to China recalled that he shared with Baosteel people how to move huge machinery, manage the temperature and pressure in steelmaking, and judge the life of parts and components. If he took notes on site, someone would immediately ask to see them, and even ask for explanations in English. Even after he explained in detail, they would still ask if there were other methods.

His evaluation of Chinese employees is:“They are prepared to die if they don’t learn.”。

In 1979, the initial stage of Baosteel's construction coincided with the three-year adjustment period of the national economy (1979-1981).

At that time, the national economy was out of balance: the economy was overheated, projects were launched everywhere, and the fiscal deficit was high. In 1979, the deficit was more than 17 billion yuan, and in 1980 it was more than 12 billion yuan. By 1980, prices were no longer stable, with commodity prices rising by 6%, including 8.1% in cities and 4.4% in rural areas. Many projects required foreign exchange to introduce equipment, but China's foreign exchange reserves were not sufficient at the time.

Baoshan project faces the risk of suspension due to fiscal deficit

Image source: Internet

Baosteel, with a planned investment of 30 billion yuan, including 4.7 billion US dollars in foreign exchange, was the largest domestic project at the time and introduced the most technology and equipment. It was naturally the focus of economic adjustment. "Due to the shortage of national construction funds, Baosteel's equipment purchase contracts signed with foreign companies were difficult to fulfill, and construction was once stopped."

However, after many investigations and special discussions, Baosteel was able to continue its construction. In July 1979, when Deng Xiaoping visited Shanghai, he said: "There is a lot of discussion about Baosteel both at home and abroad. We have no regrets. The problem is to do it well. The first thing is to do it, and the second is to ensure that it is done well."

In 1980, Baosteel once again came into the public eye because of the problem of foundation pile displacement: "Shanghai's foundation is soft, and the steel piles are displaced. Will the factory slide into the Yangtze River?" After on-site investigation and demonstration, experts concluded that "civil engineering displacement is normal."

The dock of Shanghai Baoshan Iron and Steel Plant

At the National People's Congress held in August and September of that year, Baosteel became the focus of controversy. The delegates' questions focused on several aspects: whether Baosteel's investment scale was too large to become a bottomless pit, whether the supply of imported iron ore was safe enough, whether there were geological hazards at the site of the plant, and possible environmental pollution.

After reading about this incident in the newspaper, Nippon Steel began to find out the cause through various channels.

Soon, the State Council notified Shanghai that the construction of Baosteel Project "Phase I was suspended, Phase II was not discussed, and two plates (referring to hot-rolled steel plates and cold-rolled steel plates) were returned." On December 23, the Central Finance and Economics Leading Group decided that whether to continue the construction of Baosteel Phase I must be subject to expert discussion; Phase II construction was suspended.

In early January 1981, after the Japanese government received the news, it sent people to Beijing to learn about the situation. After learning about the fiscal deficit and other related situations, the Japanese representatives said that although there are difficulties at present, they still hope that cooperation can continue, and the solution to the problem can be discussed in detail. At the end of that year, Japan provided a loan of 180 billion yen.

The Baosteel Phase I project feasibility study meeting was held at Baosteel construction sites in Beijing and Shanghai respectively and the meeting lasted for nearly a month.

A total of more than 200 people, including leading cadres, experts and engineering and technical personnel from 17 commissions, bureaus, colleges and universities, as well as Baosteel Engineering Command and Baosteel Advisory Committee, attended the meeting.

On February 10, 1981, the State Council convened a meeting on the Baosteel issue and listened to the expert discussion meeting report. After Ma Chengde, deputy general commander of Baosteel Engineering and deputy minister of the Ministry of Metallurgy, spoke, the State Council leader asked him: "You mean, using an extra billion to save more than 10 billion (referring to the investment amount already used by Baosteel), and using 1 billion less, more than 10 billion will be wasted." Ma Chengde replied: "That's what I mean."

After the meeting, leaders of the State Council visited Shanghai one after another. In August of that year, the construction of Baosteel Phase I resumed.

At the same time, the focus of foreign affairs work was the handling of contracts. "From June to September, we concentrated on conducting foreign negotiations and suspending the contracts that had already been signed. This foreign negotiation caused a strong response from foreign public opinion, and Chinese foreign affairs personnel worked in many ways to show the world that it is common to adjust construction plans internationally, and China has always valued contracts and kept its word. Any problems that arise should be negotiated and resolved in a friendly manner, and China can bear the reasonable losses of the other party for the work that has been carried out. After this solemn statement, the waves caused in the international community gradually subsided."

In 1985, after seven years of construction, the first phase of Baosteel was completed and put into production. Inayama Yoshihiro gave a speech, "We have come to this day after going through various difficulties, but the important thing is that with the friendship and efforts of China and Japan, we have overcome difficulties and obstacles one after another."

Ignition Ceremony of Baosteel No.1 Blast Furnace

Image source: Internet

At the beginning of the 21st century, Baosteel, which had completed the construction of the third phase of the project, became a steel enterprise with an annual output of tens of millions of tons. It absorbed other companies to form Baosteel Group, and its subsidiary Baosteel Co., Ltd. was successfully listed.

In July 2004, Baosteel and Nippon Steel established a joint venture, Baosteel-Nippon Steel Automotive Steel Plate Co., Ltd., with a registered capital of RMB 3 billion. Each party holds half of the shares. The company mainly produces and sells steel plates for automobiles.

Both parties also followed the common path of mergers and integration in the steel industry. In 2016, Baosteel merged with Wuhan Iron and Steel to form the new "steel giant" China Baowu Steel Group. Three years later, Nippon Steel, which merged with other companies, was renamed Nippon Steel Corporation. According to statistics from the World Steel Association, in 2023, Nippon Steel's crude steel output was 43.66 million tons, ranking fourth in the world, and China Baowu's output was 130 million tons, ranking first in the world.

China Baowu Steel Group Building, Shanghai

A lawsuit hints at competition between the two parties.

Toyota was once a customer of Nippon Steel. Since 2019, Baosteel has also started to supply electromagnetic steel sheets to Toyota in batches. This product, commonly known as silicon steel, is the core fuel for driving motors of new energy vehicles. In 2021, Nippon Steel filed a lawsuit in a Japanese court, claiming that BaosteelToyotaThe electromagnetic steel sheets supplied by Baosteel infringed its patent rights. Baosteel responded at the time that it would actively respond to the lawsuit and resolutely defend the company's rights and interests.

There is no update on the lawsuit at this time.

In July this year, Nippon Steel Corporation completely withdrew from the joint venture of Baosteel Nippon Steel Automotive Plate Co., Ltd. Baosteel will acquire the 50% stake held by the other party. It is understood that the joint venture period is 20 years and will expire at the end of this month.

Some analysts believe that the reason why Nippon Steel withdrew is that the sales of Japanese cars such as Toyota and Honda, which are the company's main customers, in China have been declining year by year, and Nippon Steel believes it is difficult to achieve business growth.In addition, the technical strength of Chinese steel companies is becoming stronger and stronger, and the competition in the automotive steel plate market is becoming increasingly fierce.

After withdrawing from the joint venture business with Baosteel, Nippon Steel still has other joint venture businesses in China - a joint venture with Wuhan Iron and Steel, a subsidiary of Baowu Steel, to manufacture iron sheets such as food cans.

References:

1. Dong Shaodong, “Baoshan Forging Steel”, Beijing Daily, August 18, 2009

2. Xiao Donlian, Pathfinder: China’s Economic Reform from 1978 to 1992 (Book), Social Sciences Academic Press, March 2019

3. Chen Jinhua, "Continuation of State Affairs" (book), China Renmin University Press, June 2012

4. Deng Xiaoping and the Construction of Baosteel (documentary)

5. Yuzen Sotaro and Sugimoto Takashi, “The Enmity between Nippon Steel and Baosteel”, Nikkei Chinese website, March 28, 2022

6. Huang Jinping, “A project with an investment of 30 billion yuan is going to be cancelled? Chen Yun opposes: This is related to the national dignity”, Shangguan News, August 21, 2023

7. Tian Yongxiu, “Academician Shen Zhiyun: A Loyal Heart for Wheels and Rails”, China Science Daily, December 12, 2014

8. "Japanese People Supporting China's Reform and Opening Up" NHK Documentary

9. Shanghai Annals·Industrial Annals·Steel Industry Volume (1978-2010)

10. "Nippon Steel withdraws from joint venture with Baosteel", Nikkei Chinese website, July 23, 2024

Author of this article | Horse Tears | responsibilityEditor | He Mengfei

Editor-in-Chief | He Mengfei | Image source |VCG