Bloomberg Businessweek
In Search of Excellence
By Wang Hairong  ·  2019-11-29  ·   Source: Bloomberg Businessweek

A smart workshop of the China Baowu Steel Group in Shanghai (LIU JIMING) 

Thirty-seven years have flown by for Lu Jiangxin, as he remembers his first days at the China Baowu Steel Group, then known as Baoshan Iron and Steel Co. Ltd. (Baosteel). 

As a fresh graduate of a technology university, Lu joined the company in Shanghai in 1982. “Construction was going full steam. The site was surrounded by orchards and rice paddies,” he recalls. 

He was assigned to a research office to study steel for petroleum pipelines. “There was no office building yet. We worked in dormitories. Two years later, office buildings sprouted up on previous farmland,” he told Beijing Review, speaking from inside a stylish building. 

Over nearly four decades, Lu has grown from a rookie technician into an accomplished scientist heading the State Key Laboratory of Development and Application Technology of Automotive Steels. 

Baowu has developed into a behemoth in the steel industry, and is now the largest steel producer in China and the second-largest in the world. The group ranks 149th on the Fortune Global 500 and 40th on the list of the top 500 enterprises in China. 

In 2018, the group produced more than 67 million tons of steel and made a profit of 33.8 billion yuan ($4.75 billion), according to its financial report. 

“Baowu’s contribution is more than profit. The company’s products have effectively supported large national science and technology projects such as nuclear power plants, large aircraft, manned spaceflights and lunar probes,” Sun Jipeng, Senior Manager at the Strategy Planning Department of Baowu, said. 

Great expectations 

Baowu was formed in 2016 through a marriage of two large iron and steel conglomerates. One, Wugang Iron and Steel Co. Ltd. (WISCO), located in Wuhan, the capital of central China’s Hubei Province, was the first large-scale iron and steel plant built after the founding of the People’s Republic of China in 1949; construction of the plant began in 1955 and it went into operation in 1958. 

Back then, China was eager to transform from an agrarian country into an industrialized one, and in desperate need of steel. “The iron and steel industry is the foundation of the national economy,” Sun said. “At that time, it was especially important for China. Without iron and steel, industrial modernization, national defense and modern agriculture would all be out of the question.”  

“In 1949, China’s steel output was only 158,000 tons, a very insignificant amount. That output was hardly enough to equip everyone in the country with a hoe, let alone meet economic development needs,” he explained. 

In 1957, China set the goal for its steel production to overtake that of the U.K. in 15 years. In the quest for rapid industrialization, during the country’s Great Leap Forward (1958–60), small backyard steel furnaces were built in virtually every village and urban neighborhood to expand steel production. But the quality of steel produced by backyard furnaces did not meet standards; thus the experiment failed. 

Nevertheless, official statistics show that from the 1950s to the 1970s, steel output grew rapidly in China, in most years hitting double digits. 

At the time, the world’s steel industry was also quickly expanding. In 1978, China’s total steel output reached 31.78 million tons, close to that of West Germany, and surpassing that of the U.K. and France. However, this was only about one-fifth the output of the Soviet Union, then the largest steel producer in the world; one-fourth that of the United States, the second-largest; and one-third that of Japan, the third-largest. 

Baowu’s other predecessor, Baosteel, established in 1978, is the offspring of China’s reform and opening up: It broke ground right after the conclusion of the Third Plenary Session of the 11th Central Committee of the Communist Party of China, the meeting that launched these national policies. In 1985, its first blast furnace went into operation. 

“At that time, the product mix and production technology of China’s iron and steel products were still far behind some developed countries, at least 20 years behind Japan,” according to Li Ming and the Path of Baosteel, a book on Baosteel’s first director published in 2017. Steel production facilities in China were outdated, only producing steel for industrial equipment and buildings, but not for vehicles and household electrical appliances. 

Under these circumstances, Baosteel was established with a large government investment. From its inception, the company was committed to producing quality steel. Li made a famous remark: “Baosteel was not set up to produce mediocre products, otherwise it would not have needed an investment of 30 billion yuan [$17.4 billion at 1978 exchange rate].” 

Seizing opportunities 

In the 1980s, expansion of industrial production and rising demand for automobiles and household electrical appliances such as refrigerators fueled surging demand for quality steel. 

Baosteel set its sights on producing sheet metal for automobiles, which was technically challenging for Chinese companies at the time, Lu said, because auto sheets needed to be flaw-free and of high strength and adequate plasticity, which were hard to achieve at the same time, and the carbon content in steel had to be lowered from 0.1% to below 0.01%. 

Lu started research into auto sheets in 1989, after receiving a master’s degree from what is now the University of Science and Technology Beijing. 

In 1990, the first high-grade automobile sheet was rolled out of Baosteel. Today, one out of every two automobiles produced in China is made with Baowu’s steel, which is high-strength and lightweight, making vehicles more energy-efficient. 

Baowu describes itself as a hi-tech enterprise with the iron and steel business as its main value carrier. The group has approximately 1,300 research and development personnel. In addition to its research centers and innovation incubator platforms, it also partners with universities and research institutes. 

By the end of 2018, Baowu owned 12,921 patents, including 5,105 invention patents, Lu Kebin, Senior Manager at the Scientific and Technological Innovation Department at Baowu, said. Since 2000, the group has won scores of national science and technology awards. 

“Today, steelmaking is no longer sweaty and smoky,” said Baowu Chairman Chen Derong. “Baowu pursues green, quality and smart development.” 

On July 22, Chen amazed an audience by demonstrating how to smelt steel remotely simply by pushing a button. When he pressed a key on an iPad screen, an oxygen furnace located 3,000 meters away was put into motion, an oxygen lance slowly dropped and the molten steel in the furnace began to flow. With the help of 5G technology, the work of the furnace can be monitored on-screen in real time. 

Today, a lot of the hard work is done by robots. According to Baowu’s 2018 corporate social responsibility (CSR) report, it has an arsenal of more than 480 robots and over 100 self-driving vehicles, along with some unmanned workshops and a huge unmanned warehouse. 

Automation has slashed costs and improved work efficiency. Citing a smart hot-rolling workshop as an example, Lu Kebin said smart production has cut energy consumption there by 5% and costs by 20%, while increasing productivity by 20%. 

The internet, Big Data and artificial intelligence are used to build Baowu’s online sales and service platform, Ouyeel. Baowu’s management model has been adjusted to better suit smart production, with the hierarchical organizational structure becoming more leveled. 

In addition to making production safer and more efficient, pollutant emissions and waste discharge have been reduced. In 2018, Baowu’s per-unit energy consumption decreased by 2.3 percent from the previous year, carbon dioxide emissions were down by 3.5 percent and nitrogen oxides were down by 2.9 percent, according to its CSR report. 


Baowu has grown stronger and smarter, banking on opportunities availed by China’s development, but its voyage has not been all smooth sailing. The biggest bump came in 2015, when the international steel industry suffered from severe overcapacity. 

In 1996, the country’s total steel output exceeded 100 million tons, making it the biggest producer in the world. Since then, both its steel production and consumption have remained the largest in the world, said Sun, adding that the country currently produces about 50% of the world’s total steel. 

China’s steel industry expanded at a rate of around 20% annually during the period from 2001–07. In 2015, sluggish demand in major steel consumption regions resulted in a glut in the world market. That year, WISCO suffered the biggest losses among Chinese steel enterprises, and Baosteel saw the largest dent in profit in its history. 

In 2015, China launched supply-side reform—readjusting its industrial structure, optimizing production factor allocation and improving the quality of economic growth—and the steel industry began to cut its overcapacity. 

Against this backdrop, WISCO was merged into Baosteel to form Baowu. Since the 2016 merger, the group has reduced its steelmaking capacity and workforce and optimized its business structure, Sun said. 

The group’s business portfolio was diversified to feature steel manufacturing as the base along with the coordinated development of five other business modules: new materials, logistics, industrial services, urban services and industrial financing. 

Envisioning the future, Sun said Baowu will produce more quality products, promote greener and smarter development, further lower costs through technology innovation and become bigger and more profitable. 

(Reporting from Shanghai) 

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