"The 3 trillion yuan debt is suffocating domestic steel enterprises. The country is adjusting its structure and economic growth is slowing down. Governments at all levels want to save us but lack the capacity." On September 3, an executive of a domestic steel enterprise told the China Business Journal reporter that developing non-steel industries has become a consensus in the steel industry. In addition to debt, environmental pressure is also "forcing" steel enterprises to save themselves.

　　The reporter learned from the 2013 (First) Steel Industry Non-Steel Industry Conference that major domestic large steel enterprises have set their own "12th Five-Year" non-steel development goals. The non-steel industry profits of some enterprises will exceed their main business, becoming a new way out for steel enterprises.

　　Overlapping Pressures

　　The massive local debt formed by large-scale local government investment has been regarded as a potential threat to China's economic development. The steel industry, which grew alongside large-scale infrastructure construction, has also fallen into a debt vortex. According to statistics from the China Iron and Steel Association (hereinafter referred to as "CISA"), as of the end of June 2013, the total liabilities of 86 large and medium-sized steel enterprises nationwide were 3.0189 trillion yuan, with an industry debt ratio of 69.47%. The 86 key steel mills had an average debt of 34.88 billion yuan each, while their total profit in the first half of the year was only 2.2 billion yuan.

　　Yuan Zhibin, a metallurgical industry researcher at China Investment Consulting, believes that the main problem facing the steel industry now is the difficulty in reducing production, which leads to overcapacity, vicious competition, declining profits, and even losses.

　　Cruel data prove that the steel industry has bid farewell to the era of high profits. At the same time, the high energy consumption and high pollution of steel enterprises have also raised public doubts about the industry. The severe smog in the Beijing-Tianjin-Hebei region in early 2013 gave the public a real understanding of the pollution from steel enterprises. The Beijing-Tianjin-Hebei region is the main steel production area in the country. After the relocation of Shougang, Hebei became the main steel production area in North China, accounting for a quarter of the national output. In 2012, Hebei's steel output was 180 million tons, while the national steel output in the same period was 716 million tons.

　　In June this year, the State Council executive meeting discussed and approved ten measures for air pollution prevention and control, explicitly proposing to reduce pollutant emissions and complete the task of eliminating outdated production capacity in key industries such as steel, cement, electrolytic aluminum, and flat glass one year ahead of the "12th Five-Year" schedule.

　　On August 30, Zhang Changfu, vice chairman and secretary-general of CISA, said that the steel industry is facing severe challenges of "high capacity, high cost, low price, low efficiency, and strict environmental protection." Steel enterprises developing non-steel industries around their main business and achieving moderate diversification is no longer a local issue but a global and strategic issue concerning the sustainable development of enterprises.

　　The "Non-Steel" Way Out

　　Xu Jiayan, deputy director of the Diversified Operation Working Committee of CISA and deputy general manager of Benxi Steel Group, introduced that the steel industry has invested more than 70 billion yuan in non-steel industries over the past decade.

　　The reporter learned that major domestic large steel enterprises have formulated "12th Five-Year" development goals for non-steel industries. For example, Baosteel proposed that the total output value of non-steel industries reach 200 billion yuan by 2015. Hebei Iron and Steel (000709, Stock Bar) Group, Shougang, Kunming Steel, Taiyuan Steel, Maanshan Steel, and Xiangtan Steel also proposed goals of 140 billion yuan, 100 billion yuan, 50 billion yuan, 35 billion yuan, 30 billion yuan, and 20 billion yuan, respectively.

　　Li Xinchuang, executive deputy secretary-general of CISA and president of the Metallurgical Industry Planning and Research Institute, told this newspaper that in 2011, among the total main business profits of steel enterprises with an output of more than 5 million tons, the profit from the steel main business accounted for only 50%, while the profit from non-steel industries accounted for 26%.

　　It is understood that in 2012, the sales profit margin of large and medium-sized steel enterprises in China was only 0.04%, while the average sales profit margin of non-steel industries was between 3.5% and 6%.

　　In fact, compared with large foreign steel enterprises, the scale and proportion of non-steel industries in domestic steel enterprises are not large. For example, ThyssenKrupp's is 40% to 60%, Nippon Steel's is 35%, and India's Tata's is 40%.

　　At present, the non-steel industries of domestic steel enterprises mainly include resources, extended steel deep processing, production services, engineering technology, machinery manufacturing, real estate, food, chemicals, finance, tourism, and other industries.

　　"Since low profits in the steel industry will become the norm, the profit share of non-steel industries in the steel industry is likely to rise further and even become the main source of profit," said Yuan Zhibin. The development of non-steel industries may divert enterprises' investment in product research and development, including the research and development of high-end steel, which may affect the process of upgrading China's steel industry.