A choking city's road to reform

Steel companies in Tangshan are trying to consume more steel locally and extend the production chain through deep processing.

A total of 82 steel deep processing projects with a total investment of 52.53 billion yuan are expected to consume 10.3 million tons of steel this year and contribute 16.38 billion yuan in taxes, according to Tangshan's mayor, Chen Xuejun.

The government is dedicated to improving the share of the tertiary industry to 36 percent in its industry portfolio by 2016.

Tangshan will invest 148.7 billion yuan in more than 150 service projects within three years, including port logistics, financial services, trade and tourism, medical care, and elderly care to create 300 billion yuan in added value, said Chen.

Tangshan Iron and Steel Co Ltd, the largest iron and steel producer in the city, is aiming for the non-steel sectors for survival.

Since 2010, 16,000 workers, nearly half of the company's total payroll, have been resettled in 22 non-steel affiliated companies in the sectors of LED manufacturing, logistics, information automation and liquefied natural gas.

"Our company will be a comprehensive industrial enterprise in the future, with steel as the basis," said Yu Yong, the company's chairman.

By 2015, 22,000 staff of the company will be engaged in non-steel industries, and revenues from the non-steel sectors will surpass those of the steel sector, he said.

Tangshan has paid a huge environmental cost for its inefficient growth model. It is the right time to transform its industrial structure, said Xue Zhimin, deputy director of the Hebei provincial government research office.

The government should use strict environmental standards as a threshold to eliminate outdated capacity and speed up the industrial upgrade, said Xue.

But for medium and small companies like Tangjia Iron and Steel Company, which have far less capital to invest, the road to transformation is daunting.

A company executive said on condition of anonymity that he hoped the government could compensate their losses from capacity reduction and provide funding as well as preferential tax policies to start new businesses.