trends, challenges and opportunities in china's cement industry

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Toward a Sustainable Cement Industry Trends, Challenges, and Opportunities in China’s Cement Industry March 2002

by Mason H. Soule, Jeffrey S. Logan, and Todd A. Stewart

with contributions from

Florence Ma, Caroline Quinn, and Anataike Information Development Co.

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An Independent Study Commissioned by:

World Business Council for Sustainable Development This substudy is one of 13 research investigations conducted as part of a larger project entitled, "Toward a Sustainable Cement Industry". The project was commissioned by the World Business Council for Sustainable Development as one of a series of member-sponsored projects aimed at converting sustainable development concepts into action. The report represents the independent research efforts of Battelle Memorial Institute and their subcontractors to identify critical issues for the cement industry today, and pathways forward toward a more sustainable future. While there has been considerable interactive effort and exchange of ideas with many organizations within and outside the cement industry during this project, the opinions and views expressed here are those of Battelle and its subcontractors. Battelle Battelle endeavors to produce work of the highest quality, consistent with our contract commitments. However, because of the research nature of this work, the recipients of this report shall undertake the sole responsibility for the consequence of their use or misuse of, or inability to use, any information, data or recommendation contained in this report and understand that Battelle makes no warranty or guarantee, express or implied, including without limitation warranties of fitness for a particular purpose or merchantability, for the contents of this report. Battelle does not engage in research for advertising, sales promotion, or endorsement of our clients' interests including raising investment capital or recommending investments decisions, or other publicity purposes, or for any use in litigation. The recommendations and actions toward sustainable development contained herein are based on the results of research regarding the status and future opportunities for the cement industry as a whole. Battelle has consulted with a number of organizations and individuals within the cement industry to enhance the applicability of the results. Nothing in the recommendations or their potential supportive actions is intended to promote or lead to reduced competition within the industry.

( TR E N D S , C H A L L E N G E S , A N D O P P O R T U N I T I E S I N C H I N A ’ S C E M E N T I N D U S T R Y )

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Foreword Many companies around the globe are re-examining their business operations and relationships in a fundamental way. They are exploring the concept of Sustainable Development, seeking to integrate their pursuit of profitable growth with the assurance of environmental protection and quality of life for present and future generations. Based on this new perspective, some companies are beginning to make significant changes in their policies, commitments and business strategies. The study, of which this substudy is a part, represents an effort by ten major cement companies to explore how the cement industry as a whole can evolve over time to better meet the need for global sustainable development while enhancing shareholder value. The study findings include a variety of recommendations for the industry and its stakeholders to improve the sustainability of cement production. Undertaking this type of open, self-critical effort carries risks. The participating companies believe that an independent assessment of the cement industry’s current status and future opportunities will yield long-term benefits that justify the risks. The intent of the study is to share information that will help any cement company – regardless of its size, location, or current state of progress – to work constructively toward a sustainable future. The pursuit of a more sustainable cement industry requires that a number of technical, managerial, and operational issues be examined in depth. This substudy, one of 13 conducted as a part of the project, provides the basis for assessing the current status or performance and identifies areas for progress toward sustainability on a specific topic. The project report entitled Toward a Sustainable Cement Industry may be found on the project website: http://www.wbcsdcement.org.

Study Groundrules

This report was developed as part of a study managed by Battelle, and funded primarily by a group of ten cement companies designated for this collaboration as the Working Group Cement (WGC). By choice, the study boundaries were limited to activities primarily associated with cement production. Downstream activities, such as cement distribution, concrete production, and concrete products, were addressed only in a limited way. Battelle conducted this study as an independent research effort, drawing upon the knowledge and expertise of a large number of organizations and individuals both inside and outside the cement industry. The cement industry provided a large number of case studies to share practical experience. Battelle accepted the information in these case studies and in public information sources used.

The WGC companies provided supporting information and advice to assure that the report would be credible with industry audiences. To assure objectivity, a number of additional steps were taken to obtain external input and feedback. A series of six dialogues was held with stakeholder groups around the world (see Section 1.5). The World Business Council for Sustainable Development participated in all meetings and

monitored all communications between Battelle and the WGC. An Assurance Group, consisting of distinguished independent experts, reviewed both the quality

and objectivity of the study findings. External experts reviewed advanced drafts of technical substudy reports.

The geographic scope of the study was global, and the future time horizon considered was 20 years. Regional and local implementation of the study recommendations will need to be tailored to the differing states of socioeconomic and technological development.


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List of Acronyms FIE Foreign invested enterprise GDP Gross domestic product MOR Ministry of Rail SABMI State Administration of Building Materials Industry SETC State Economic and Trade Commission SOE State-owned enterprise TSP Total suspended particulates

Glossary Concrete A material produced by mixing binder, water, and aggregate. The fluid mass undergoes hydration to produce concrete. (Average cement content in concrete is about 15%.)

Gigajoule 1 billion (109) joules

Stakeholder A person or group that has an investment, share, or interest in something, as a business or industry.

Sustainable development Ability to continually meet the needs of the present without compromising the ability of future generations to meet their own needs.

( T O W A R D A S U S T A I N A B L E C E M E N T I N D U S T R Y )

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Executive Summary Overview This document describes trends, opportunities and challenges for the cement industry in the People’s Republic of China. It focuses on the following topics: Organizational structure and administration, Production, technology, and ownership, Cement markets, Environmental issues, and Future trends and opportunities.

China is expected to remain the world’s most populous country through 2040. Its gross domestic product (GDP) has averaged growth of more than 9 percent each year since liberalization and economic reforms began in the late 1970s. In 1985, China became the world’s leading producer of cement, and today produces over one-third of total global output. While China’s cement industry is relatively insulated from a global perspective, changes are underway to improve product quality, management practices and profitability, including further opening the sector to participation by international players.

Political Framework and Organization of the Industry In 2000 and 2001, the Chinese government decentralized its industrial ministries, and the organizational structure of the cement industry remains in a state of flux. The Ministry of Building Materials has been changed, first to a State Administration of Building Materials Industry (SABMI), and earlier in 2001 to a small, quasi-governmental Cement Association. Changes in top officials have occurred and provincial authorities now exert more control over the industry.

Ownership A shrinking number of cement companies (now about 24 percent) remain state-owned, while a growing number (about 3 percent) are foreign invested enterprises (FIEs). Collective enterprises account for over 50 percent of companies while 10 percent are privately owned. There also is a trend toward consolidation, as evidenced by the 1999 formation of China United Cement Company, a large state-owned holding company.

Production China has been the world’s leading cement producer since 1985. The United States Geological Survey estimated that China produced 576 million tonnes in 2000, about 36 percent of the world’s total. Combined, the next three largest producers—the United States, India, and Japan—produce less than 20 percent of the world’s cement.

Cement Plants The estimated number of Chinese cement plants ranges from 8,000 to 9,300, although the actual number is uncertain due to the fragmented nature of the industry, the small size of many plants, the fact that some plants exist illegally, and data reliability issues. About 50 percent of these facilities are rural township enterprises with average annual output of less than 30,000 tonnes. Only about 570 of the 8,500 cement producers had production capacities exceeding 275,000 tonnes per year in 1995, and only ten plants produce more than one million tonnes annually. For comparison, industrialized cement producing countries average 40 to 50 major producers that manufacture up to four million tonnes annually.


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China plans to increase the average production capacity at facilities throughout the industry through plant closures and upgrades. The country plans to raise average plant production to 200,000 tonnes per year by 2005, 300,000–400,000 by 2010, and 400,000–500,000 by 2015.

Plant Closures and the Issue of Unemployment China announced in 1999 that it would close thousands of small or antiquated cement operations. As many as 6,000 plants are slated to be closed, with 4,000 closures scheduled by the end of 2001. Given current progress, this level of closure by year end 2001 seems unlikely. Initially targeted for closure are 2,000 illegal or improperly licensed cement producers as well as outdated cement operations. China plans to close (through non-recertification) plants that: Produce #325 and lower grades (by 2005) Have vertical kiln diameters smaller than 2.2 meters and/or produce <30,000 tonnes/year,

and Have wet process kilns (either to be closed or converted to dry processes).

Closures are significant not just for the loss in production (estimated to be about 100 million tonnes annually, more than 20% of China’s total), but because of the unemployment plant closures will bring. Barriers to the successful closure of the plants include: Worker displacement and retraining costs Potential political instability, and Opposition from local leaders who have economic interests in the plants.

The key issue is retaining political stability in the face of greater unemployment. The problem is exacerbated compared to similar issues in other developing countries because Chinese cement plants employ up to ten times the labor of plants in developed countries, and because China has a less robust system of protective social security. Many of the closed plants will be in rural areas and it is hoped that released workers can fall back on their agricultural jobs or be absorbed in the rapidly growing private sector. Many provincial and local governments are not enthusiastically implementing these centrally planned plant closures at this time.

Product Output Grades and Technology In 2000, #325 and lower-grade cements accounted for about 30 percent of Chinese production; #425 cements made up a little over 60 percent; and about 10 percent represented high-grade #525 cement. The higher-grade cements will all increase in share in the future as #325 production is reduced. Production of special purpose cement is likely to grow rapidly. In 1995, China produced 12 million tonnes of special cement, 2.7 percent of total cement production. For comparison, developed countries produce 6–10 percent special cement. Today, 138 million tonnes—or one-quarter—of Chinese cement production comes from rotary kilns; the remaining 433 million tonnes from vertical kilns that will be slowly phased out. Most of the anticipated 100 million tonne reduction will be of vertical kiln production. By 1998, China had 86 dry-process cement production lines, accounting for 10 percent of cement production. The current strategy is to bring new kilns online and to upgrade old facilities, while older equipment is phased out.

Geography Cement production generally tracks well against population density, but there are production concentrations in Shandong and Guangdong provinces and among the coastal provinces


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generally. There are 40 enterprises with annual capacities over 1 million tonnes, and 30 of these are located in coastal provinces. The central government is emphasizing the future development of the poorer western provinces to help alleviate regional income differentials that result in migration to the more crowded east. The western provinces account for comparatively little cement production. As urban land development rationalizes (where land uses are determined by economic and environmental considerations), local governments are reclaiming land from urban cement plants and replacing them with less noxious and more profitable activities. Companies are being displaced to the urban fringes and also moving closer to limestone deposits, employing conveyer systems to transport limestone over medium distances.

Cement Markets China consumes about 35 percent of the world’s cement, a figure expected to rise to about 40 percent by 2010.

Domestic Demand Growth in Chinese cement production is due to the construction boom accompanying high GDP growth rates. Only rotary kiln cement can be used legally to build high-rise buildings in China, and demand for the higher grade #425 and #525 cements was estimated at about 170 million tonnes in 2000 and projected at 250 million tonnes by 2005. Forty percent of China’s cement is now used for basic infrastructure construction (an area regularly neglected during the period of heavy central planning.), with about one-third of that used in rural areas. Twenty-five percent is used for maintenance activities. China’s transport sector uses cement in road construction rather than asphalt. As China lacks an adequate national highway system and its rail network is so overburdened, investment can be expected in highways over the medium term.

Prices Low quality cement is oversupplied and cheap, while high quality cement is rarer and more expensive. Profit margins for most cement producers hover near zero. Despite the growth in construction, cement prices have fallen 25 percent to US$36 per tonne for high-grade #525 bulk cement and US$38 per tonne for bagged cement due to a competitive market.

Transportation Because cement is a bulk commodity, transportation costs are a significant component of the industry’s cost structure. The main issue, however, is with the transport of coal because it is an important input into cement production and because it is the primary source of pressure on a strained transport infrastructure network. Cement industry sources indicate that the availability of coal has not constrained the cement industry to date. Unless long-term investment is made to improve the rail network this situation will worsen.

Foreign investment in bulk cement storage and transportation facilities is now strongly promoted.

Trade China is the second leading cement exporter in the world, accounting for about 17 percent of total world cement trade. Exports of cement dramatically exceed imports, about 5 million tonnes v. 200 thousand tonnes, respectively in 2000. Shaft kiln cements of #425 and #525 comprise 60–70 percent of total exports. A share of this is from foreign owned companies or joint ventures, which themselves account for about 25 percent of exported cement. Major exporting regions include Shandong, Jiangsu, Guangdong, Liaoning, Guangxi, and Hebei provinces. The


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largest exporting companies include Daewoo Shandong Metal and Minerals Import/Export (with sales of about 2 million tonnes); and Taiheiyo Cement (with sales of about 1.8 million tonnes). The United States is the largest market for Chinese cement, accounting for 42 percent of trade in 1998.

Environmental Issues Energy The cement industry is very energy intensive and China relies almost exclusively on coal to produce cement. Energy accounts for roughly 40 percent of the total manufacturing cost of cement in China. Unlike some industrialized countries, China has not yet moved to alternative energy sources in its cement kilns, although that may become an option. If China were to succeed in replacing output from plants that produce #325 cement with more efficient plants, it would save approximately 15 million tonnes of coal each year. Improving energy efficiency is important to a wide range of stakeholders because it cuts energy costs, improves local environmental quality, and reduces greenhouse gas emissions (see below).

Emissions China has significant environmental problems. Ambient air levels of total suspended particulates (TSP) and sulfur dioxide (SO2) in Chinese cities are among the highest in the world. In turn these heavy pollutant loads are closely associated with significant respiratory illness and approximately 200,000 premature deaths each year in urban areas. China’s contribution to global carbon dioxide (CO2) emissions is approximately 14 percent. Cement plants are responsible for over 40 percent of total industrial particulate (dust) emissions. Chinese cement plants are also responsible for about 6 to 8 percent of the country’s carbon dioxide emissions. These emissions are produced in roughly equal parts from fuel combustion and the liberation of carbon dioxide from limestone at high temperature. Carbon dioxide emissions from small Chinese plants are two or more times higher than plants in industrialized nations (because of poor efficiencies requiring more fuel use, etc.). Increasing the efficiency of cement kilns is one way to reduce carbon dioxide emissions. Cement production is also associated with a number of other environmental problems including contamination of local water sources, mercury emissions, excessive noise, erosion surrounding limestone quarries, and nitrogen oxide emissions. Dry rotary kilns, including precalcinator kilns, are the most energy efficient technology currently available in China. The associated reduction in coal combustion accompanying the closure of #325 plants would reduce carbon dioxide emissions by about 30 million tonnes, sulfur dioxide by 250,000 tonnes, and solid waste and dust by over 5 million tonnes each year.

Environmental Laws and Regulations China has developed a range of environmental laws to deal with air pollution, solid waste, water pollution, etc. Many of these are modeled after US or European legislation. Since 1989, emission limits for cement production have been set at 150 milligrams of particulates per cubic meter of exhaust gas. In April of 2000, China announced that emission limits would be reduced to 100 milligrams per cubic meter of exhaust. For comparison, cement plants in Europe conform to a limit of 70 milligrams, which is being lowered to 50 milligrams. Enforcement of laws is not uniform and remains an issue. Provincial level environmental protection agencies are responsible for enforcing emission limits and can direct capital toward polluters to upgrade their equipment. However, production and profit often supercede


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enforcement. Environmental regulations tend to be strictly enforced when foreign companies are involved.

Finance and Investment It is difficult to obtain domestic financing for investment projects within China. Financial needs are many, and sources limited. Even though China has begun to rein in the growing number of non-performing loans from its banks, the banking industry remains strapped for funds. Chinese stock markets have been an important but insufficient source of low-cost capital for listed enterprises. The central government encourages foreign investment as an additional source of capital and because foreign technology is usually superior to that embodied in domestically produced equipment. Still, foreign investors frequently face special difficulties as a result of an evolving legal framework gradually replacing transactions based on relationships. Foreign investors often claim that the Chinese cement market lacks transparency because: Final decision-making authority is not clear, Laws and regulations change rapidly and are not uniformly enforced, and Information is not widely and uniformly available.

In recent years, it has become easier for foreign companies to obtain permits for cement projects. But the paperwork, time, and dedication necessary to bring an investment to closure remain daunting, and the sentiment is shared that this situation will only change slowly. Even with sometimes-vicious competition and difficulties in operating in an opaque market, key opportunities are open for both domestic and foreign companies. Promising areas include investment in: Bulk cement transport and storage infrastructure, Environmental control equipment, Precalcinator and dry rotary cement kilns, and Specialty cements.

As of 1998, there were 287 foreign-invested enterprises in joint ventures, co-ops, or wholly owned operations. FIEs account for about 3 percent of all cement producers but contribute about 15 percent to national output. China hopes to make foreign participation account for about 20 percent of total investment in the industry, but many consider this an ambitious target.

Future Trends And Opportunities The State Development Planning Commission will increase total investment in all fixed assets by ten percent in 2001. Most investment will be used in infrastructure construction, environmental protection, technology upgrading, innovation, and education. Several of these priorities will positively affect the cement industry. Following near term (two to three year) adjustments to plant closings, cement output is projected to increase by about 2.8 percent per year during the Tenth Five-Year Plan (2001–2005) and by 2.5 percent during the Eleventh Five-Year Plan (2006–2010). From current production of around 576 million tonnes, China anticipates producing 660 million tonnes by 2005, 750 million tonnes by 2010, and 800 million tonnes by 2015. While slowly increasing production capacity, improvements in cement quality will occur more rapidly as older, less efficient facilities are closed or upgraded and newer, more modern facilities are built. Still, the


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2005 production target seems high, if thousands of small plants are simultaneously being closed. Shortages of high-grade cements will remain, regardless. Vertical kilns currently contribute 75 percent of production, a number expected to decline only to 50 percent by 2015. China is predicted to be the world’s largest market for cement machinery at least until 2010. Foreign investment will be focused on precalcined production lines with capacities of 4,000 tonnes or more using new dry processes for cement clinker. China plans to increase cement production from pre-heater and calciner kilns to 20 percent of total production by 2005. Bulk cement is projected to become a larger proportion of Chinese cement output, reaching 182 million tonnes or 29.5 percent of total production by 2005. China will continue the move away from enterprise-provided housing to a privatized housing market. This will stimulate housing demand from low and middle income Chinese. Other reforms aimed at improving the overall efficiency of China’s quasi-market economy will include: Banning barriers to local protectionism, Commercializing the residential housing sector, Providing more discipline to bank lending and cleaning up existing bad loans, Enforcing existing legislation more thoroughly and enacting new laws, Allowing state-owned enterprises to reform without interference from local governments, and Demanding greater transparency and accountability in both government and financial

sectors. To address regional income disparities, the western provinces have investment priority during the Tenth Five-Year Plan. These regions include: Xinjiang, Ningxia, Qinghai, Shaanxi (including Xian), Gansu, Sichuan, Tibet (Xizang), Chongqing City, Guizhou, and Yunnan (including Kunming). Eastern provinces should not expect new plants, but there will be many opportunities for technology upgrades in these areas. China has ambitious plans to prepare for the 2008 Olympic games. There will be much new construction in Beijing to accommodate the games. Strict environmental measures to improve air and water quality also will be in force in the capital region. China’s accession to the World Trade Organization, likely by early 2002, will affect the cement sector only marginally. The sector faces little real threat from international competition due to the high transport costs of cement and abundant non-tariff barriers. WTO may have an impact on the domestic use of cement because China’s construction industry will be gradually opened to foreign builders starting in 2001. Foreign firms will be permitted to enter every part of the construction sector except from general planning of cities and high-level real estate projects.

Information Sources Sources used for this study include interviews with Chinese government officials and cement company managers, Internet sources, commercial database articles, and statistical compendia. No Chinese statistical yearbooks on the building materials industry (which includes cement) have appeared in several years. Therefore, there are some conflicting numbers in the text and many of the insights drawn herein are based on anecdotal evidence.


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Table of Contents 1. China’s Cement Sector in a Changing Economic Landscape.............................................. 1 2. Organizational Structure ..................................................................................................... 3

2.1. Political Framework..................................................................................................... 3 2.2. Financing and Investment ........................................................................................... 4 2.3. Foreign Investment and Participation.......................................................................... 5

3. Raw Materials and Reserves .............................................................................................. 6 4. Cement Production ............................................................................................................. 8

4.1. Cement Products and Quality ..................................................................................... 9 4.2. Equipment and Technologies.................................................................................... 10 4.3. Energy Consumption ................................................................................................ 13 4.4. Bulk Cement ............................................................................................................. 14 4.5. Special Cements....................................................................................................... 15 4.6. Ownership................................................................................................................. 15 4.7. Major Producers ....................................................................................................... 16 4.8. Small Producers ....................................................................................................... 19

5. Labor................................................................................................................................. 20 6. The Market for Cement ..................................................................................................... 21

6.1. Domestic Consumption............................................................................................. 21 6.2. Cement Prices .......................................................................................................... 22 6.3. Imports...................................................................................................................... 22 6.4. Exports ..................................................................................................................... 23

7. Infrastructure and Transportation ...................................................................................... 25 7.1. Railways ................................................................................................................... 25 7.2. Water Transport ........................................................................................................ 25

8. Environmental Considerations .......................................................................................... 26 9. Prospects and Future Developments ................................................................................ 29 10. References ................................................................................................................... 30 Appendix A Chinese Cement Producers with More Than 2000 Employees56 ..........................A-1 Appendix B: Case Studies of Major Cement Producers57 ........................................................B-1 List of Tables Table 3-1. Average Input Levels for Cement Production by Type of Process in China .............. 6 Table 4-1. Cement Output from Key Chinese Provinces (Million Tonnes) ................................. 8 Table 4-2. Rotary and Shaft Kiln Production, 1985–2000 (million tonnes) .............................. 10 Table 4-3. Kiln Types and Major Technical and Economic Performance in 1999..................... 11 Table 4-4. Major Foreign Cement Equipment Suppliers .......................................................... 11 Table 4-5. Cement Production Goals by Type of Kiln, 2000–2015 (million tonnes)................. 12 Table 4-6. Foreign-Invested Enterprises in China’s Cement Industry ..................................... 16 Table 4-7. Large, Medium, and Small Cement Producers, 1995.............................................. 16 Table 4-8. Key Chinese Cement Producers by Province and Output....................................... 18 Table 6-1. Profitability of the Cement Industry, 1992–1997 (Yuan million)............................... 21 Table 6-2. Cement Consumption, 1995–2001 (million tonnes) ................................................ 21 Table 6-3. Cement Imports, 1995–1998 (thousand tonnes)..................................................... 23 Table 6-4. Cement Exports, 1998–2001* (million tonnes)........................................................ 23 Table 6-5. Major Cement Customers, 1998............................................................................. 24 Table 8-1. Particulate and Sulfur Dioxide Emissions from China’s Cement Sector .................. 26


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List of Figures Figure 4-1. Cement Production, Selected Years, 1980–2001* (million tonnes).......................... 8 Figure 4-2. Projected Chinese Cement Production, 2000-2015................................................. 9 Figure 4-3. Chinese Cement Production, by Grade, 2000 and 2005........................................ 10 Figure 4-4. Primary Energy Intensity of Selected Cement Producing Nations.......................... 13 Figure 4-5. Changing Fuel and Electricity Intensity in China’s Cement Industry ...................... 14 Figure 4-6. Ownership of Chinese Cement Enterprises, 1999 ................................................. 15 Figure 4-7. Provincial Shares of Chinese Cement Production, 2000........................................ 17 Figure 4-8. Average Production by Cement Plant, 1995, Selected Countries .......................... 18


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1. China’s Cement Sector in a Changing Economic Landscape Much of China’s remarkable development over the past few decades rests on cement—the primary ingredient in concrete. The country has constructed millions of new houses and buildings, paved thousands of kilometers of new highways, and built hundreds of large power plants, all requiring enormous quantities of cement. China’s cement industry has grown remarkably since economic reforms began in the late 1970s. At the start of reforms in 1978, China ranked fourth in world cement output and produced about 65 million tonnes of cement a year. By 1985, China had become the world’s largest producer. A thriving construction industry promoted continued strong growth for cement and by 1998 China’s cement output was twice as much as the next three largest producing countries combined. While growth in China’s cement industry has been impressive, the sector remains plagued by structural, institutional, financial, and environmental problems. Two-thirds of China’s cement, for example, is produced in small, inefficient plants that consume far more fuel and emit far more pollution than international norms. Further, very low quality cement still accounts for as much as one-quarter of all production. China initiated economic reforms in 1978 in an attempt to move away from sluggish central planning and toward a market-oriented system. Unique to the Chinese transitional experiment was continuation of the rigid political framework of the Communist Party. Reforms began in the agricultural sector but quickly moved into industrial sectors. Changes included: Opening the economy to increased foreign trade and investment Increasing the authority of plant managers and local officials Permitting a wide variety of small-scale enterprises in light manufacturing and services.1

These reforms helped unleash a long-dormant mercantile spirit in China and had a significant impact on economic growth. Average GDP grew by more than 9 percent between 1980 and 2000. (See Figure 1.) Industry posted major gains associated with the reforms, especially in coastal areas where foreign investment helped spur output of both domestic and export goods. Over this period, GDP expanded nearly 6-fold, rivaling similar periods of economic development in Japan and South Korea.1 In 1993, the authorities approved additional long-term reforms aimed at providing still more freedom to market-oriented institutions and at strengthening central control over the financial system. State-owned enterprises (SOEs) continued to dominate many key industries in what was now called “a socialist market economy.” During the mid to late 1990s, inflation dropped sharply as economic reforms began to bite and the Asian financial crisis restricted certain export markets.2 Beginning in 1997, many products, including cement and coal were oversupplied, offering greater justification to close down thousands of small, inefficient factories. In late 2000 and early 2001, domestic demand began to grow again and price indices were positive for the first time in three years. Despite these fluctuations, a large number of small cement producers remain as the government has not met goals to close, merge, or consolidate these plants. The ownership structure of cement plants in China changed significantly through the 1980s and 1990s. Collectively-owned plants, including township and village enterprises, grew fastest and now account for over half of total output. State-owned plants, which until recently had used the most modern and efficient equipment, now account for about one-quarter of the country’s output. Privately owned plants have also grown rapidly and now account for one-tenth of all


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production. The number of foreign invested enterprises (FIEs) also grew rapidly during the 1990s, although these plants still produce only a small fraction of China’s total output.

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1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

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Source: China Statistical Yearbook 2000. Value for 2001 is estimated.

Figure 1-1. Reported Post-Reform GDP Growth Rates in China

Long-term challenges to the continued growth of the economy include: Imbalanced population structure Environmental pollution Water shortages Political unrest from both growing income disparity and unemployment.2

It is this last issue that seems to drive the pace of reform in China: the fear of political unrest from too many unemployed workers dictates the degree of discipline imposed on state-owned enterprises. China’s labor force stood at 700 million workers in 1998 with half employed in agriculture and the other half split between industry and services.1 At least 15 million urban workers employed at state-owned enterprises were laid off between 1998 and 2000. Some progress was made in training laid-off workers for other jobs, especially in the private sector. Six million laid-off workers found new jobs in the late 1990s with the help of these reemployment programs.1


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2. Organizational Structure China’s cement industry was established during decades of central planning. During the 1950s and 1960s, Chinese planners promoted policies aimed at local self-sufficiency. Limited transport capacity and sources of finance existed across many regions of the country, preventing the strategic development of the cement sector. As a result, China built a huge number of small cement plants that lacked economies of scale and focused on serving local markets. More than other Chinese industries, China’s cement sector is fragmented and lacks strong organizational structure from the center. Over the past several decades, local and provincial government agencies have played a key role in expanding the cement sector.

2.1. Political Framework The central government largely controlled production of cement through the 1970s. Much of this was done by direct or indirect control of key state-owned cement production enterprises. During the 1980s and 1990s, local and provincial governments asserted much greater influence. Key government players in China’s cement industry include the State Development and Planning Commission, the State Economic and Trade Commission, the Ministry of Construction, the State Environmental Protection Agency, and the Ministry of Finance. Most of these centralized organizations have offshoots at the local and provincial level.3,4,5 The State Administration of Building Materials Industry (SABMI), affiliated with the State Economic and Trade Commission (SETC), is the key government body overseeing the cement industry. SABMI draws up development plans for the industry that include foreign investment and equipment standards. SABMI’s authority is much weaker in the non-state-owned enterprise sector. Many of the plants built during the late 1980s and 1990s, therefore, are only nominally under its jurisdiction. In 2000, much of the SABMI’s regulatory responsibility was absorbed within the SETC. After these reforms, SABMI and other state administrations were reduced to association status.4,5 The State Development Planning Commission and local planning agencies are responsible for approving new cement plant construction. The approval process can be time consuming and unclear. At the highest levels, China has taken steps to streamline and modernize the bureaucracy, but change is occurring slowly. China’s cement industry has also taken steps to reform itself from within. Much of the industry is moving toward a group or association structure. China’s cement industry is moving more slowly toward this structure than other industries in China because the cement industry is more fragmented.5,6 The State Environmental Protection Administration also plays a role in guiding equipment usage in the cement industry, although its power is limited. Provincial level environmental protection agencies are responsible for enforcing emission limits and can direct capital toward the most offensive polluters to upgrade their equipment.7 China is also trying to create world-class state owned enterprises by consolidating key companies. In 1999, China formed the China United Cement Company—a large state-owned holding company—by merging China New-Style Building Material Group Company, China Building Material and Equipment Import and Export Company, and Anhui Hefei Cement Research and Design Institute.8 China United is 85 percent owned by China New Construction Materials Group. Its goal is to acquire enough companies to produce 20 million tonnes of cement becoming one of the world’s ten largest cement enterprises by 2005. By September 1999, it had acquired two large cement plants and was close to acquiring a third. Several of the firms that the company acquired have debt-asset ratios of more than 100 percent, which throws into doubt the ultimate success of China United’s strategy.3Error! Bookmark not defined.


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In the late 1990s, China also began a process to reign in the growing number of non-performing loans at China’s four large banks. It modeled efforts after a fairly successful effort in the United States during the late 1980s and created asset management companies to take over bad loans. China established the Cinda Asset Management Company in April 1999 to manage bad loans provided to many state-owned enterprises. Cinda began acting as financial advisory to China United, but so far has had difficulty offloading the bad loans.3, 8

Legal Framework China does not have a strong legal tradition, but many new laws have been enacted over the past few years. After the founding of the People’s Republic of China (PRC) in 1949, general legal development continued slowly until the late 1970s when China enacted legislation to promote foreign investment. China’s legal system still suffers from inefficiencies and gaping holes. Enforcement of the law is poor, although this is beginning to change. In modern times, the structure of China’s law is influenced by the civil law legal system, which also is predominant in continental Europe.9 Foreign investors face special difficulties due to the weak legal system in China. Rules and regulations are not well defined or uniformly applied. Foreign investors often claim that the Chinese cement market lacks legal transparency because: Final decision-making authority is not clear Laws and regulations change rapidly and are not uniformly enforced Information on legal requirements is not widely and uniformly available.10

Furthermore, many laws and regulations are enforced to protect the interest of state-owned companies. This protectionism deters independent foreign development. Under Chinese law, land belongs solely to the government. Joint ventures can lease the land for cement plants for periods of 40–50 years. Lease prices are negotiable and determined by local conditions. In general, this leasing system functions, but costs are often high and lessees may not be always be ensured all the legal protections offered in industrialized countries.14 Over 1000 of China’s 8000 plus cement plants are considered to be operating illegally because they did not receive government approval prior to opening. Procedurally, cement plants must submit project proposals, complete feasibility studies, and receive approvals from local, provincial, or state officials depending on the size of the project. The State Development Planning Commission provides central approval for large-scale cement producers. Some of these illegal plants may have received only city or district level approval.5 The lack of enforcement capability has permitted these plants to remain open.

2.2. Financing and Investment Investment in China’s cement industry has surged over the past twenty years, although much of it has been poorly directed. New investments between 1980 and 2000 led to an increase in annual production of over 400 million tonnes. But due to the sector’s heavy fragmentation, investment has not been conducted strategically. Much of the investment was directed in small or now outdated vertical kiln technology. Only a small proportion was focused on more advanced technology such as dry or precalcinator kilns. The small, outdated technology has lower upfront costs, but consumes more energy and is responsible for more environmental pollution than newer systems. It also prevents the economies of scale that can result in lower costs over the long run.7


5

Local producers lack domestic financing for capital improvements. In some cases, companies are not able to pay their workers or suppliers. However, companies generally do not declare bankruptcy, presumably because of Chinese finance laws. Even when the investment council in Guangdong province did declare bankruptcy, for example, the council made no layoffs.10 It seems likely that “policy” loans to state-owned Chinese cement plants will continue until more discipline is imposed that requires significant consolidation within the industry. China’s rigid centrally controlled finance structure has led to inefficient results when investment strategies fail. For example, beginning in 1985, the China Construction Bank helped create a surplus in the cement industry by financing several hundred facilities with bank credit. As conditions worsened because of the lack of equity financing, the Bank made 6.1 billion yuan (about U.S.$750 million) in loans to 88 cement plants. Roughly 4.68 billion yuan ($560 million) of the initial investment is now considered non-performing.11 The Chinese government has made some strides in using its investment strategies to promote a more efficient cement industry. Recently, it shifted its investment in the cement sector away from Southern provinces in favor of Beijing, Shanghai, and Western provinces where greater cement production is needed.10

2.3. Foreign Investment and Participation Domestic financing sources in China’s cement industry are limited. Foreign investment is, therefore, highly sought. In recent years, it has become easier for foreign companies to obtain permits for cement projects as Chinese policy and law has evolved. Nevertheless, foreign investment has not developed as quickly as possible because Chinese policies for foreign investment are not well defined or uniform.10 There is a significant amount of paperwork for foreign investment and joint ventures, and as mentioned above, the legal atmosphere of the industry is uncertain.14 There is hope that some of the regulatory barriers associated with foreign investment will be alleviated when China finally joins the World Trade Organization.5 On a relative scale, however, many foreign investors see China as a relatively safe investment despite the deterrents. For example, the Chinese market is considered to be lower risk than Indonesia. Despite infrastructure shortages that are discussed below, China’s transport, electricity, and water infrastructure is reliable, especially compared to other developing Asian countries.5 By 1995, foreign investors from Japan, South Korea, France, and Taiwan were financing nine joint or wholly owned ventures in China, each with an annual capacity of at least 1 million tonnes. Companies from the United States and Europe were eager to invest in the sector. Foreign-backed cement projects were located primarily in coastal areas such as Jiangsu and Fuijian provinces, Dalian in Liaoning Province, Qinhuangdao in Hebei Province, and Yantai in Shandong Province.12 China currently is encouraging foreign investment in two areas: dry production technology for clinker with daily output of 4000 tonnes or more, and bulk cement transportation and storage facilities.13 China hopes to make foreign participation account for about 20 percent of total investment in the industry, but many consider this an ambitious target.7 In addition to foreign investment, China has used debt financing to develop the industry. By 1995, China had borrowed more than $1 million from the World Bank and the Asian Development Bank to import equipment for cement production. The government and individual enterprises have also borrowed directly from foreign governments including Japan, Canada, Kuwait, Spain, Denmark, and France.13


6

3. Raw Materials and Reserves Traditionally, Chinese cement plants were located close to demand centers. Recently, as transportation services improved, some cement plants have been located closer to resource deposits. Presumably, these moves will lower shipping costs for raw materials and will help alleviate the overburdened Chinese transportation sector. One barrier to this development, however, is the relative scarcity of water resources, necessary to cement production, especially in northern and western China.10 Until recently, some cement producers bought their raw materials on the basis of spot markets. Producers are starting to move toward more long-term contracts.10 Mining activities in China are not very advanced. A heavy reliance on non-mechanized labor and a lack of safety precautions lead to numerous mining accidents and deaths each year.10 Currently, it takes about 1.5 tonnes of limestone and about 200 kilograms of coal to produce one tonne of cement. But the advanced dry rotary kiln process provides for much for efficient production of cement.5 (See Table 3-1) About 300-400 kg of cement is needed to produce one cubic meter of concrete.

Table 3-1. Average Input Levels for Cement Production by Type of Process in China

Input Wet/Vertical process Dry/Rotary process Coal 250 kg/tonne cement 130 kg/tonne cement Total power 100 kwh/tonne cement 90-95 kwh/tonne cement Limestone 1.35 kg/kg clinker Clinker 1.2 kg/kg cement Alumina Same Silicon Same Iron Same

Source:14 China’s cement industry is very energy intensive so changes in the country’s energy sector are likely to have major impacts on the cement industry. Currently, China relies on coal almost exclusively to produce cement.10 Unlike some industrialized countries, China has not yet moved to burning trash and other alternative energy sources in its cement kilns, although that may become an option if coal prices continue to rise. Chinese coal prices were freed in the early 1990s and, outside of the main producing areas, are now relatively high. In southeastern coastal China, coal imported from Australia or Indonesia is now competitive with domestic coal sent from the north. The Chinese government has demonstrated increasingly serious measures to improve the country’s negative environmental image, much of which is due to its use of coal. New regulations are coming into effect that may make coal more expensive. Other fuel sources for cement production, such as natural gas, will grow in importance, although it seems unlikely that these relatively expensive, high-quality fuels will gain market share in the cement sector where energy costs are critical for competition. Other factors, however, continue to force the cement industry to rely on coal as its primary energy source. China’s coal sector has been vastly oversupplied since 1997, resulting in falling prices and efforts to close small, inefficient and dangerous mines. Many of the small mines


7

have continued to operate illegally and sell their labor-intensive coal on the black market for very low prices. It appeared that the coal glut was coming to an end in early 2001 and coal prices were beginning to rise again. Over the long run, economic reforms will help China achieve greater economies of scale in the coal sector. Consolidation of small mines and permanent closure of the most inefficient mines will rationalize the coal sector. Even as the coal sector begins to absorb some of the environmental costs of coal use, the greater economies of scale will likely offset some of these higher costs.


8

4. Cement Production China is, by far, the world’s largest cement producer with an estimated production of over 570 million tonnes in 2000.15 (See Figure 4-1.) Per capita cement output has reached 448 kg, which is about 200 kg higher than the world average.11 At the founding of the People’s Republic of China in 1949, total national production was only 660,000 tonnes per year.16 By 1985, China had become the world’s leading producer. It has retained the leading position for sixteen years, and now produces about 36 percent of the world’s cement. The next three largest producers—the United States, India, and Japan—produce less than 20 percent of the world’s cement combined.

0

100

200

300

400

500

600

700

1980 1985 1990 1995 2000

Cem

ent P

rodu

ctio

n (M

illio

n To

nnes

)

0

5

10

15

20

25

Gro

wth

from

Pre

viou

s Ye

ar (%

)

Cement Production Growth

Note: 2000 output is estimated, 2001 output is forecast. Source: China Statistical Yearbook 1999, State Statistical Bureau: Beijing, 2000.

Figure 4-1. Cement Production, Selected Years, 1980–2001* (million tonnes)

Most of the growth in Chinese cement production is due to the booming construction sector. During the 1980s, there was significant growth in the rural residential construction, where demand for low-quality cement (#325 grade) was high. During the 1990s, however, growth in demand was mainly in the higher-grade categories (#425 and #525). Cement output grew by over 20 percent per year in the early 1990s but has slowed to less than 4 percent since 1997.13 By 1999, China found itself with a cement surplus. The State Development and Planning Commission had planned to reduce cement production by 100 million tonnes by the end of 2000, but appears not to have met this target.3 Shandong province in eastern China is the country’s largest cement producer with an output of 54 million tonnes in 1998. Other major cement provinces are Guangdong, Hebei, Jiangsu, and Henan. (See Table 4-1) Interestingly, cement output in the most developed and progressive provinces has remained stable or declined in recent years.17

Table 4-1. Cement Output from Key Chinese Provinces (Million Tonnes) 1996 1997 1998 Shandong 56 58 54 Guangdong 53 51 51


9

Table 4-1. Cement Output from Key Chinese Provinces (Million Tonnes) Hebei 34 38 39 Jiangsu 40 40 39 Henan 31 34 38 Zhejiang 35 34 34 Sichuan 31 24 25 Anhui 23 23 19

Source: China Statistical Yearbook, various years. Chinese planners project that cement output will increase by 3.4 percent annually during the Tenth Five-Year Plan (2001–2005) and by 2.9 percent during the Eleventh Five-Year Plan (2006–2001).13 They anticipate producing 660 million tonnes by 2005, 750 million tonnes by 2010, and 800 million tonnes by 2015. (See Figure 4-2) Clinker production is to increase by 10 million tonnes per year from 2001 to 2005. Other forecasters suggest that China will hold production close to 2000 levels while upgrading technology and efficiency throughout the industry.7 So far, the conservative production estimates seem more likely.

4.1. Cement Products and Quality China produces several strength grades of cement including #325, #425, #525, and #625. General types include silicate cement, general silicate cement, slag silicate cement, volcanic ash silicate cement, powdered coal silicate cement, and compound silicate cement. Special types include oil well cement, medium-low heat cement (dam cement), fast solid cement, anti-sulfate cement, white cement, and colored cement. China also produces sulfur aluminum cements and aluminum cements.13

Source: [13]

750

800

576

660

500

550

600

650

700

750

800

850

2000 2005 2010 2015Year

Mill

ion

tons

Figure 4-2. Projected Chinese Cement Production, 2000-2015

Overall, Chinese cement is not of particularly high quality. This can be attributed to the widespread use of vertical kilns. According to 1997 data, only about 10 percent of production was high-grade #525 cement. Medium quality #425 cement makes up 62.7 percent of Chinese production and low-grade #325 cement makes up the remainder.13,15 There are surpluses and low prices for low-quality cement, and shortages and higher prices for higher-quality cements.10


10

Chinese authorities are making moves to improve the quality of Chinese cement. #325 cement production is to be eliminated by the end of 2005 in favor of higher-grade cements. Part of this strategy includes bringing new kilns online and upgrading old facilities, while older, less efficient equipment, especially shaft kilns, are phased out.15 Also by 2005, high-quality cement is to make up 40 percent of cement production.13 (See Figure 4-3) SETC had begun to implement these plans by April 2001.

Source: [9] Figure 4-3. Chinese Cement Production, by Grade, 2000 and 2005

China is also studying whether it should revise its cement production so that it is in accordance with ISO standards.13 In April 2001, the country announced that strength testing standards would be based on ISO 32.5 standards.14

4.2. Equipment and Technologies This is wide variation in equipment used to produce cement in China. As recently as June 2000, China had 13,250 kilns of various type, size, and age still in operation.15 In general, Chinese producers operate a low number of technologically advanced rotary kilns in favor of older vertical kilns.18 Vertical shaft kilns account for more than 400 million tonnes of cement production. As production more than tripled from 1985 to 1997, the proportion of shaft kilns to rotary kilns remained relatively constant; use of both types of kilns tripled during that period.5 (See Table 4-2)

Table 4-2. Rotary and Shaft Kiln Production, 1985–2000 (million tonnes) Description 1985 1987 1989 1991 1993 1995 1997 2000

Rotary kilns 33.4 37.7 47.7 50.1 77.4 92.5 97.5 137.5 % of Total 22.9 20.3 22.7 19.9 21.3 19.4 18.6 24.1

Vertical shaft kilns 112.5 148.5 162.7 202.5 295.98 383.2 425.9 432.5 % of Total 77.1 79.7 77.4 80.1 78.7 80.6 81.4 75.9

Source: [7] Because of recent lulls in demand as a result of economic reforms, Chinese cement officials have had an opportunity to evaluate and rationalize its obsolete and inefficient cement production capacity. The government has proposed a strategy of closing older plants and building newer ones.15

Cement Production by Grade in 2000 (570 million tons)

325#32%

Special cem ent3%

625#1% 525#

12%

425#52%

Cement Production by Grade in 2005 (660 million tons)

Special cem ent

6%

325#0%

625# 2% 525#

23%

425# 69%


11

China has targeted 100 million tonnes of vertical kiln production capacity for closure because of their obsolescence. Vertical kilns produce lower strength cement—clinker is usually #100 lower in strength classification than rotary kilns. Vertical kiln cement has a high percentage of free calcium in the clinker making it a poor choice for concrete mixtures.5,13 Most new plant construction will be located in development regions, which include central and western China and it will presumably include newer rotary kiln construction.15 By 1998, China had 86 dry-process cement production lines. This accounted for only 10 percent of cement production. Only eight of these lines were up to world standards; they had daily capacities of clinker of 4000 tonnes, or 10.40 million tonnes per year, 2 percent of national totals.18 By 1999, there were 121 dry-process lines with capacities ranging from 700 to 7200 tonnes per day with favorable coal consumption and quality rates. Forty-three of these lines had capacities of over 2000 tonnes per day. (See Table 4-3) Most of the lines with capacities over 2000 tonnes per day had foreign equipment and processes. In addition, by 2001, there were over 400 preheater lines that ranged from 150 to 600 tonnes per day capacity.20

Table 4-3. Kiln Types and Major Technical and Economic Performance in 1999

Kiln type Clinker index

Capacity Factor (%)

Coal consumption

(kgce/t)

Power consumption

(kwh/t) No. of kilns

Precalcined kilns 605 70.5 133.1 114.8 121 Suspended preheater kilns 573 76.5 172.3 109.9 348 Preheater shaft kilns 597 78.5 167.1 120.7 140 Exhaust heat generating kilns 581 76.1 230.3 110.0 88 Lieber kilns 590 75.1 160.6 121.1 20 Hollow rotary kilns 577 64.5 220.7 110.5 383 Wet kilns 620 85.8 195.5 103.4 188 Mechanical kiln 550 84.0 144.7 97.1 7593 Ordinary shaft kilns 480 60.5 157.3 94.0 344 Source: [7] Prior to 1995, China purchased most of its cement-production equipment from prominent suppliers in Germany, Japan, Denmark, and France. A small, but significant, amount of its equipment was purchased from the United States. (See Table 4-4) Because of the need to upgrade and modernize its cement-production equipment, China is predicted to be the world’s largest market for cement machinery until 2010.19

Table 4-4. Major Foreign Cement Equipment Suppliers Company Country

FL Smith Cement Machinery Company Ltd. Denmark Fuller Company United States KHD Company Germany Dyckerhoff Aq Company Germany FCB Company France Chuan Qi Company Japan Chichibu Onoda Cement Corporation Japan

Source: [13] Foreign joint ventures are a considerable source of newer rotary kilns. But, most of the 150 rotary kilns in use are Chinese-owned. The larger kilns use foreign technology, but there are some lines with capacities of 2000 tonnes per day that use very little foreign equipment.5


12

As priorities for foreign investment were shifted in the late 1990s, China emphasized that foreign investment in the industry would be focused on production lines using the new dry process for cement clinker with capacities of 4000 tonnes or more.17 China has set technology-related goals for the cement industry. These include: Dry processing technology using out-of-kiln disassemble technology Power-saving technology for standing grinder, roll, squeezer, powder-selecting and fine

grinding equipment Co-generation by medium to low temperatures Low-grade primary fuel and industry waste.13

Included in these goals are renovations of 2.2 meter or larger diameter vertical kilns, cement flourmills, stations for bulk and commercial cement, additives, and building blocks. Finally, technology for processing non-metal products including calcite, kaolin, and quartz, are also included.13 Also under these policies, native kilns, general vertical kilns, and mechanicals kilns smaller than 2.2 m in diameter and dry and wet processing production lines with hollow kilns under 2.5 m in diameter were to be closed. Lower-capacity furnaces and mills were to be shut down. Finally, no new construction or expansion of wet processing platforms, dry processing hollow kilns, vertical lepol kilns, or varied vertical kilns would be permitted, according to a regulation from the SETC in 2000.13 China is placing a priority in acquiring precalcined lines and other advanced technology and processes in the future. It plans to increase cement production from pre-heater and calciner kiln to 20 percent of total production by 2005. This will increase capacity by 60 million tonnes and cost about 30 billion yuan. There are 50 units currently under construction with capacity of 22 million tonnes. Large pre-heater and precalciner equipment with daily capacities of 5000 tonnes will be developed.7 China has set target production goals for various types of equipment. (See Table 4-5.) Achieving such rapid growth in rotary kiln technology will likely require special incentives from the central and local governments.

Table 4-5. Cement Production Goals by Type of Kiln, 2000–2015 (million tonnes)

Kiln Type 2000 2005 2010 2015 Rotary kiln 138 245 330 400 Vertical shaft kiln 433 420 420 400 Total 476 660 750 800 Average 100 200 300-400 400-500

Source: [7,20] The cement industry has reached a point in its technological development that it has begun to export cement technology to developing countries. China signed deals to construct cement plants in the Philippines, Egypt, and Iran.21,22,23 The deals have included equipment, staff training, and installation of turnkey facilities.24


13

4.3. Energy Consumption Cement production is very energy intensive. In China, energy costs accounted for roughly 40 percent of the total manufacturing cost of cement in the early 1990s.25 China’s cement sector is considered inefficient due to the large number of small or outdated kilns, but its overall energy intensity was just above the world average of 4.8 gigajoules of primary energy per tonne of clinker. (See Figure 4-4)

0

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Japa

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yKore

a

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ndChin

aInd

ia

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USAEgy

pt

Russia

Prim

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Ener

gy In

tens

ity (G

J/t)

Source: [26]

Figure 4-4. Primary Energy Intensity of Selected Cement Producing Nations

Coal continues to power kiln production in China but has tended to decrease over the last ten years. Coal consumption for shaft kilns, however, has had almost no change indicating that the use of these kilns has peaked.20 (See Table 4-5 above.) Approximately three-quarters of the coal-fired electricity in the cement industry is used to run motors, fans, and environmental control equipment. Improving energy efficiency is important to a wide range of stakeholders because it cuts energy costs, improves local environmental quality, and reduces greenhouse gas emissions. China’s cement industry consumes roughly six percent of the nation’s energy, with 80 percent of that coming from coal and other fossil fuels and the remaining 20 percent from electricity. The intensity of fuel use has declined over the past two decades while the intensity of electricity use has risen slowly. (See Figure 4-5) Energy consumption varies significantly among Chinese cement producers due to the wide range of technologies in use. Modern precalciner plants in China are as efficient as any in the world, while some of the waste heat power generation kiln plants use more than twice as much energy per unit of clinker produced. Dry processes and precalciners will permit China to use the same amount of coal but increase efficiency and capacity of kiln production.14 Closing the smallest, most inefficient kilns is the most important step towards improving overall energy efficiency in China’s cement sector. Recent reports suggest that about 6000 plants are to be closed in the medium term with about 4000 closures to come in 2001.14 China plans to accomplish this by not re-certifying plants that


14

Produce #325 grade or lower cement, or Use vertical kiln production lines with kiln diameters of less than two meters and capacity of

less than 30,000 tonnes per year.14

0

50

100

150

200

250

1980 1985 1990 1995

Fuel Intensity (kgce/ton clinker) Electricity Intensity (kWh/ton cement

Source: [27] Figure 4-5. Changing Fuel and Electricity Intensity in China’s Cement Industry

These closures are expected to reduce total production by about 100 million tonnes, a 20 percent reduction. The schedule for these closures seems ambitious, especially considering that rural reforms would likely slow due to rising unemployment.14 If China were to shut down all plants that produce #325 grade cement and replace the output from plants with modern efficiencies, it would save at least 15 million tonnes of coal each year. This coal combustion is responsible for about 30 million tonnes of carbon dioxide emissions, 250,000 tonnes of sulfur dioxide, and over 5 million tonnes of solid waste and dust each year.

4.4. Bulk Cement The percentage of Chinese cement shipped in bulk is growing rapidly. Almost all cement was shipped in bags through the early 1980s, but bulk shipments reached nearly 20 percent in 2000. In industrialized countries, bulk cement accounts for more than 60 percent of all cement shipments.28 Bulk cement requires dedicated transportation equipment and storage facilities, but has environmental benefits associated with using less material for packing. China produced 111.2 million tonnes of bulk cement in 2000, about 8 percent above projections and 17.5 million tonnes more than 1999. This was the first time that the figure had exceeded 100 million tonnes. The increase to over 110 million tonnes had been a target of the Ninth Five-Year Plan (1996–2000). Large and medium-sized cement plants produced 61.9 million tonnes of bulk cement in 2000, a 21 percent increase over 1999. Small plants produced 49.3 million tonnes in 2001, a 16.3 percent increase from 1999.29 Bulk cement production was expected to reach 182 million tonnes per year during the Tenth Five-Year Plan (2001–2005). China plans for bulk cement to make up 29.5 percent of total cement production by 2005. Four provinces are expected to continue to be major producers: Jiangsu (22 million tonnes), Shandong (20 million tonnes), Guangdong (18 million tonnes), and


15

Zhejiang (14 million tonnes).30 Foreign investment in bulk cement storage and transportation facilities is now strongly promoted.

4.5. Special Cements Production of special purpose cement is likely to grow rapidly in the future. Current output levels are too low in quality, quantity, and variety to satisfy future demand in China’s rapidly evolving economy. In 1995, China produced 12 million tonnes of special cement, 2.7 percent of total cement production. For comparison, developed countries produce 6–10 percent special cement. Statistics for 1998 showed a decrease in the proportion of special cement to overall production to 1.4 percent. By 2000, China planned to increase special cement production to 15-20 million tonnes per year.13 Aluminous cement, used in specialized applications requiring quick bonding or resistance to high temperatures or as an adhesive in ceramic goods, was only produced in China beginning in the late 1990s. In fact, in 1999, a prominent cement firm in Europe agreed to provide assistance to Canada’s SNC-Lavalin in constructing a $25 million, 30,000-tonne capacity aluminous cement plant in Tainjin.31

4.6. Ownership Ownership in the industry is currently a mix between state-owned, partially private, and foreign-owned companies. Collectively owned enterprises, which are generally collaborations between local government actors and private investors, now account for over half of all cement companies in China. (See Figure 4-6.) While there are still more state-owned than private producers, China has allowed some privatization in both domestic and foreign stock exchanges. China continues to encourage foreign investment in the industry and has seen investment from major international cement producers since 1995.15

Share company5%

State-owned24%

Individual and other0%

Foreign-Invested

Enterprises (FIE)2%

Investment from Hong Kong,

Macao, Taiwan1%

Joint operation2%

Private10%

Collective56%

Source: [13]

Figure 4-6. Ownership of Chinese Cement Enterprises, 1999


16

As of 1998, there were 287 foreign-invested enterprises (FIE) in joint ventures, co-ops, or wholly owned. FIEs account for 2.8 percent of all cement producers and they produce about 80 million tonnes, 1.2 percent of national output. Participants from Hong Kong, Macao, or Taiwan make up about 46.9 percent of all FIEs.13 (See Table 4-6)

Table 4-6. Foreign-Invested Enterprises in China’s Cement Industry Type Number %

Joint venture (not Hong Kong, Macao, or Japan) 121 42.1 From Hong Kong, Macao, or Taiwan 106 36.9

Co-operative venture (not Hong Kong, Macao, or Japan) 21 7.3 From Hong Kong, Macao, or Taiwan 17 5.9

Wholly-owned foreign enterprise (not Hong Kong, Macao, or Japan) 10 3.5 From Hong Kong, Macao, or Taiwan 12 4.1

Total FIEs 287 100 Source: [13]

4.7. Major Producers Cement producers are spread throughout China with medium and large-scale cement enterprises located in all regions except Tibet. (See Figure 4-7) However, much more cement is produced in coastal areas, which comprise 71.5 percent of national production. Shandong, Guangdong, Hebei, Jiangsu, and Henan provinces are the most prominent cement producers accounting for 44 percent of national output.13 Only about 570 of China’s estimated 8500 cement producers had production capacities above 275,000 tonnes per year in 1995. (See Table 4-7) Figure 4-8 illustrates the small size of average Chinese cement plants compared to plants in France, the United States, and Germany. With the industry developing rapidly in the last several years, however, there are now 40 enterprises with annual capacities over 1 million tonnes. Thirty of these producers are located in coastal areas.13

Table 4-7. Large, Medium, and Small Cement Producers, 1995

Description Total Large and Medium Size Enterprises Small Enterprises

Cement production (million tonnes) 476 158 318 Producers 8435 576 7859

% of total 100 6.8 93.2 Average capacity (thousand tonnes) 56.4 274.6 40.4

% of total 100 33.2 66.8 Source: [7]


17

Source: [60]

Figure 4-7. Provincial Shares of Chinese Cement Production, 2000

Beijing

Shanghai

Xinjiang

Qinghai

Xizang

Yunnan

Sichuan

Gansu

Shaanxi

Shanxi

Hubei

Guizhou

Guangxi

Hainan

Guangdong

Fujian

Zhejiang

Anhui Jiangsu

Shandong

Nei Mongu

Jilin

Heilongjiang

Hunan

PAK.

AFG.

KYRGYZSTAN

Hong Kong

TAIWAN

NORTH KOREA

SOUTH KOREA

NEPAL BHUTAN

BANGLADESH

CAMBODIA

INDIA

RUSSIA

KAZA KHSTAN

MONGOLIA

PHILIPPINES

MYANMAR

THAILAND

LAOS

VIETNAM

Yellow Sea

East China Sea

South China Sea

Lake Balkhash

Lake

Baikal

Bay of Bengal

0 500 Miles

500 km

Liaoning

Jiangxi

Henan

Ningxia

Hebei

Chongqing

> 10% total 5-10% 1-5% (<1% not shown)


18

Sources: Number of US plants and US and European production58

http://minerals.usgs.gov/minerals/pubs/commodity/cement/170396.txt Number of European plants59; China plants and production:7

Figure 4-8. Average Production by Cement Plant, 1995, Selected Countries

China has just 150 cement producers that can be classified as modern. Example companies from this category are listed in Table 4-8. These producers have a combined estimated capacity of about 200 million tonnes, about 36 percent of China’s production.15 Nevertheless, production is considerably widespread among producers; only ten produce more than one million tonnes annually. Ninety-seven percent of Chinese cement producers produce an average of 40,000 tonnes per year. For comparison, other major industrialized cement producers, such as the United States, Japan, South Korea, Russia, and France average 40 to 50 major producers that produce up to four million tonnes annually.3

Table 4-8. Key Chinese Cement Producers by Province and Output Name Province Annual Output*

Anhui Conch Cement Anhui 8.0 Hebei Jidong Group Hebei 4.5 Bohai Group Hebei 2.0 Lafarge (foreign) Sichuan, Hebei Holderbank (foreign) Jiangxi, Anhui Taiheiyo Cement (Japan) Jiangsu, Liaoning 4.0 Mitsubishi Cement (Japan) Shandong 1.2 Chia Hsin Group (Taiwan) 1.9 Asia Cement Hubei Daewoo Shandong Cement (South Korea) Shandong 2.5 CBR’s China Century Cement Guangdong

* Million tonnes; Source: [15] Other large cement producers are outlined in Appendices A and B. China plans to increase the average production capacity at facilities throughout the industry. Currently, the overall average capacity is 100,000 tonnes per enterprise. The country plans to raise this figure to 200,000 by 2005, 300,000–400,000 by 2010, and 400,000–500,000 by 2015.

800.0

663.7

552.6

56.4

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

China France UnitedStates

Germany

Country

1,00

0 to

nsAvg Production by Plant


19

Closing thousands of the smallest producers will make this goal easier to achieve than first glance would suggest.7

4.8. Small Producers Several factors contributed to the growth of small cement producers in the 1980s and 1990s. During this period, there were high prices and a shortage of cement. In addition, China loosened restraints on the economy. This led to small-scale, unplanned growth, with producers emerging in small villages and towns.5 In 1995, there were nearly 8000 small cement producers, accounting for well over 90 percent of the industry in China, with average annual output of less than 60,000 tonnes. Half of these facilities were rural township enterprises with an average annual output of less than 30,000.32 Also as of 1995, township cement plants with small, labor-intensive kilns produced approximately 70 percent of the country’s cement.19 This is an improvement over 1993 in which nearly 88 percent of Chinese cement was produced in local plants and only 12 percent was produced in key state plants.33 As in other industries, a significant proportion of Chinese cement is produced at the local level by small, obsolete facilities. China announced in mid-1999 that it would begin closing small operations. It targeted almost 2000 unlicensed cement producers as well as outdated cement production lines for closure by 2000. The closures were expected to reduce the country’s cement production by 100 million tonnes. At the same time, no new cement plants were to be opened.34 The cuts were to be phased: 40 million tonnes would be cut in 1999 and 60 million tonnes would be cut in 2000.35 These closures were to shut down 676 small vertical kilns and 490 vertical kiln production lines with diameters smaller than 2 meters in 1999 and 1470 small mechanic vertical kilns with diameters smaller than 2.2 meters and 395 production lines in 2000.36 Reports suggest, however, that these plants have not all been permanently closed.5 Labor issues remain an import issue behind the failure to close cement plants as planned.


20

5. Labor Labor productivity in China’s cement industry is lower than in developed countries.7 As a result of China’s efforts to modernize its cement industry and the resulting plant closures, unemployment levels in the industry have risen in the last few years. Problems from layoffs could be acute in areas that depend on local cement facilities. The government is expected to impose transition periods to lessen the impact.15 Social insurance is determined at the provincial or municipal level; there will be regional variations on what unemployed workers will receive.14 Many of employees at plants that are to be closed during the Tenth Five-Year Plan are farmers that work the rural plants during off-seasons. Rural incomes will therefore be further eroded in some areas if closures are carried out according to plans.14 Despite reports of recent layoffs, there continues to be a problem with social contract issues. China is less willing to close plants and lay off workers because of the risk of social instability that unemployment might create. China hopes to create a more robust social security system by requiring state-owned companies that list on the stock market to contribute to a nationwide fund. Clearly, fears of unemployment have slowed plans of closing plants. Even when the state government orders closures, local governments often ignore such orders to maintain employment, or to protect their own investments in local plants.5 In general, Chinese workers are technically capable but safety at many plants is poor. Chinese plants are labor intensive by design; most regions have not placed a priority on capital investment due to the abundance of labor. Chinese plants may require as much as ten times the labor of developed countries. Foreign joint ventures and investors are restricted by the amount of capital used in their plants and are often required to use more labor than would be optimal. 5 See Appendix A for Chinese cement producers with over 2000 employees.


21

6. The Market for Cement China now consumes about 35 percent of the world’s cement. This figure is expected to rise to about 40 percent by 2010. In recent years, though, overcapacity has resulted in extremely low prices. Profit margins for most cement producers hover near zero.10 Overall, the industry was profitable in the early 1990s but lost money in the mid 1990s. (See Table 6-1)

Table 6-1. Profitability of the Cement Industry, 1992–1997 (Yuan million) 1992 1993 1994 1995 1996 1997

Total Profit 47.12 110.32 54.42 5.39 -22.95 -35.37 Profit/Output Ratio (%) 10.17 14.20 5.89 0.52 -1.96 2.94

Source: [13] With an economy relatively insulated from international events, including a refusal to devalue its currency, China was able to avoid many of the effects of the recent Asian economic crisis. As a result, domestic demand for cement has been suppressed for the last several years and growth in consumption has been slower than expected.15

6.1. Domestic Consumption Since 1995, cement consumption has matched production, but overall growth has slowed considerably since the early 1990s. (See Table 6-2)

Table 6-2. Cement Consumption, 1995–2001 (million tonnes) 1995 1996 1997 1998 1999 2000* 2001**

Consumption 468 480 501 511 557 560 570 % Increase -- 2.6 4.4 6.0 8.3 0.5 1.8

Note: Sources conflict on actual output levels. *Estimated, **Forecast Source: [13,15]

Despite the fact that there are medium and large cement enterprises located throughout the country, the supply and demand of cement varies by region according to differing development trends. A handful of provinces (Shandong, Hebei, Liaoning, Henan, Anhui, Hunan, Guangxi, and Gansu) have cement surpluses. Several other provinces (Beijing, Tianjin, Shanghai, Guangdong, Fujian, Hainan, Heilongjiang, Inner Mongolia, Xinjiang, and Hubei) have cement deficits. Other provinces have relatively balanced supply and demand.13 Forty percent of China’s cement is used for basic infrastructure construction. Twenty-five percent is used for maintenance and 33 percent is used in rural areas. 13 Consumption of cement is clearly linked to economic growth. One unique characteristic of China’s transportation sector is that it uses cement in road construction rather than asphalt. The State Development Planning Commission announced that it would increase total investment in fixed assets to 3.59 billion yuan (US$433 billion) in 2001, a ten percent increase over 2000. Most of this investment will be used in infrastructure construction, environmental protection, technology upgrading, innovation, and education.37 Infrastructure development in western China is expected to increase over the next few years. Construction bonds totaling 150 billion yuan (US$12 billion) will be issued in 2001 to finance large infrastructure projects in the area.37 China had planned to invest US$750 billion in its infrastructure from 2000–2003. These improvements were to focus on transportation, irrigation, energy, and water conservation, requiring strong new growth in cement demand. Cement demand was expected to increase


22

9 percent annually from this spending. It does not appear that the plans have materialized, though, at least not during 2000.38 China planned to increase living space for urban residents to about nine m2 by 2000. This meant an increase in cement demand as about 240 million m2 of residential housing was to be built from 2000–2002.17 China also planned on considerable construction for the China National Games in 2001 in Guangdong. About 30 billion yuan was to be spent on several major facilities.39 With the recent announcement that Beijing will host the Olympics in 2008, it is likely that the city will see increased cement demand as well. Since only rotary kiln cement can be used legally to build high-rise buildings in China, the demand for this product was expected to reach about 170 million tonnes by 2000 and 250 million tonnes by 2005. Brand names are not yet recognized in China but the effects of marketing are expected to improve as the market changes. While World Trade Organization conventions may not have a significant effect on the import or export of cement in China, WTO may have an impact on the domestic use of cement because China’s construction industry will be opened to foreign builders over 2001–2006. Foreign firms will be permitted to enter every part of the construction sector aside from general urban planning and high-level real estate projects. Accompanying this change, China will move away from enterprise-provided housing to a privatized housing market. This is expected to stimulate housing demand from low and middle income Chinese.40

6.2. Cement Prices Cement prices were deregulated by the State Planning Commission and the State Administration of Building Materials Industry in 1996. This permitted major producers to compete on a local level with many township enterprises, which offered more flexible pricing. Prior to this move, 45 state-owned enterprises, which produced a large proportion of cement to priority infrastructure projects, were permitted “price-setting rights” in 1993. Wholesale high-grade rotary kiln cement was priced at 235 Yuan (US$28) per tonne by state regulation. Production costs at the time were 245 Yuan (US$29.50) per tonne. Deregulation, however, did include measures that prevented producers from “monopolizing the market by cutting prices.”41 Since 1997, deflation and increased competition throughout China have pushed down cement prices. Prices in Shanghai have dropped more sharply than any other area. Despite the increase in construction, cement prices have fallen 25 percent to US$36 per tonne for high-grade #525 bulk cement and US$38 per tonne for bagged cement.15 Cement prices vary regionally, though. For example, prices in Guangdong rose in late 1997 and early 1998 and were expected to continue to rise.39 By 2000, export prices were marked down to about US$20 FOB. 15 Until recently, many cement producers sold their products on the basis of spot markets, but some producers are starting to move toward more long-term contracts.10

6.3. Imports China imports only a tiny fraction of its total cement and clinker demand. Cement imports topped 1 million tonnes in 1993 and 1994 due to the extremely rapid growth in domestic demand, but declined by 1995 due to increased domestic production capacity.13 (See Table 6-3)


23

Table 6-3. Cement Imports, 1995–1998 (thousand tonnes)

1995 1996 1997 1998 Cement 313.6 51.7 168.7 179.8 Clinker 26.3 0.09 9.3 123.1

Source: [13] There are currently tariff and non-tariff barriers that prevent greater imports of cement to China’s booming coastal cities. First, import tariffs on imported clinker and cements range from 6 to 8, but this rate is not expected to decline after China joins the WTO. Far more influential are the non-tariff barriers that include: A strong belief that China should be self-sufficient in cement due to its enormous production

capability Limited port and distribution facilities Limited distribution of import licenses.

Taiwan, Japan, Italy, Canada and the United States are the key import sources for cement.

6.4. Exports China opened its cement market to international sales in 1978. But export levels remained sluggish for a decade. China exported only 180,000 tonnes in 1989, to Hong Kong and Macao. Since 1990, though, exports have been considerably higher but have fluctuated with the demand in the Chinese market.32 (See Table 6-4) Table 6-4. Cement Exports, 1998–2001* (million tonnes)

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Cement 6.8 10.7 6.5 2.4 4.5 8.2 11.8 11.7 8.2 7.2 5.5 2.5 Clinker 0.9 0.2 2.4 0.4 0.6 0.2 0.2 * Note: Sources conflict on actual output levels. 2000 Estimated, 2001 Forecast Source: [13,15, 32] The ability to export cement is limited, though, as cement calcinations lose CO2 over time. This leads to relatively low trade rates for the product. As a result, international trade agreements, such as the World Trade Organization, are expected to have little impact on the cement industry.5 For the most part, China exports shaft kiln cement of #425 and #525 grade. These cements comprise 60–70 percent of total exports. Foreign participation and joint ventures accounted for about 25 percent of the cement that was exported in 1996. Exports of rotary kiln cement are relatively small. Despite these reports, there have been allegations that exported Chinese cement is substandard.42 In an effort to increase exports and to be more competitive on the world market, China sought to increase the quality of cement while decreasing production costs.13 Major exporting provinces include Shandong, Jiangsu, Guangdong, Liaoning, Guangxi, and Hebei. An average of 5 percent of production in each of these provinces is exported. Together, they account for over 90 percent of China’s exports.13 Overseas sales are being coordinated by large international organizations as many large-scale Chinese producers are reducing export sales. Export prices have been reduced to about


24

US$20 FOB. The main exporters are Daewoo Shandong with 2 million tonnes, and Taiheiyo with 1.8 million tonnes. The United States was the main customer of both companies.20 As recently as 1998, China was the second leading cement exporter in the world. China accounted for about 17 percent of the total world cement trade.13 But due to the recent Asian economic crisis, China’s exports decreased by nearly 30 percent as regional cement prices dropped. Prior to that, China expected to export 10-15 million tonnes in 2000. 13 China shielded itself from much of the impact of the Asian financial crisis because of its isolated economy, but cement exports to some nations declined. The regional recession caused the closure of several new Chinese cement plants, which were targeted for foreign markets. Restructuring of price controls was suggested as a potential way for China to maintain its market share. Prior to the recession, China exported 11.68 million tonnes of cement to Asian-Pacific countries.43 Daewoo Shandong Metal and Minerals Import/Export was the largest exporter in 2000 with sales of about 2 million tonnes. Taiheiyo was second with about 1.8 million tonnes. Other major exporting companies include Chan National Mineral Product Import/Export, China National Building Materials and Equipment Import/Export, Hebei Jidong Cement Works, and Liuzhou Cement Works.44 Liuzhou was China’s largest exporter in 1996, exporting 680,000 tonnes in the first ten months of the year earning $29 million.45 The United States is the largest market for Chinese cement. Other customers include the Taiwan, Hong Kong, the Philippines, South Korea, Brunei, Malaysia, Vietnam, Singapore, and Macao. (See Table 6-5)

Table 6-5. Major Cement Customers, 1998

Country Exports

(million tonnes) Value

($ million) % of all exports United States 3.50 130.6 42.01 Taiwan 1.09 31.7 37.64 Hong Kong 1.38 58.0 12.18 Totals 5.97 220.3 91.83

Source: [13] China was at a comparative disadvantage to Southeast Asian cement producers, though, who had lower production and transportation costs and better prices and delivery methods. Competition was expected to heat up as several other countries, including Romania, Russia, Pakistan, the Middle East, Indonesia and South Korea entered these markets.17 As a means of stimulating the flagging export sector, the state administration of taxation raised VAT rebates three times in 1998. In June, rebate rates for exports of cement were raised to eleven percent. The effectiveness of the rebate program has been offset by operational inefficiencies. Exporters complain that it takes several months to obtain the rebates and amounts are often miscalculated.46


25

7. Infrastructure and Transportation Infrastructure development historically has focused on eastern China for the benefit of the coastal ports, and also on Manchuria, a result of Japanese industrial development during the 1930s. During the centrally planned era, investment in infrastructure has continuously taken a secondary role to industrial production. The result has been an uneven, poor, and overworked infrastructure. Recently, however, the historical trends have begun to change. Traditionally, the Chinese located their cement plants in or near cities. Some were located near cement markets, regardless of whether there were quarries nearby. Limestone was brought to these plants by rail. Recently, cement plants are moving closer to resource deposits. Presumably, these moves will lower shipping costs for raw materials and will help alleviate the overburdened Chinese transportation sector.10 Transportation costs are very important to the industry since many of the necessary raw materials are not located close to small-scale production centers. Transport costs for slag and fly are significant since these can make up 30-60 percent of total weight. Coal also creates significant transportation costs to the industry because coal is the major source of energy for cement production. Limestone transportation costs are also significant.5 Facilities and infrastructure for bulk cement is expected to improve over the next few years. China expects to have 21,600 special vehicles, 10,700 special-purpose railway cars, 1,000 ships, 2,200 cement transshipment centers, 3,000 concrete pumping cars and 15,000 concrete mixers for bulk cement by 2005.30 China is encouraging future foreign investment in bulk cement transportation and storage facilities.13

7.1. Railways China does not have an adequate national highway system so railways continue to remain the principal carrier for long-haul freight.47 But China’s rail system is overburdened as well. The country’s rail infrastructure can only handle about 68 percent of the demand for freight transport.48 The Ministry of Rail (MOR) runs China’s train system and builds railway lines, locomotives, rolling stock, and railway equipment. As with other infrastructure ministries in China, MOR is moving into more of a regulatory role and was being reorganized.47 As of 1998, administration of the rail system shifted from the central ministry to 12 regional administrations.49

7.2. Water Transport A growing portion of Chinese freight is shipped via barge. Prices for water transport were freed in early 2001. Shipping commodities like cement or limestone over barges may now become cheaper, allowing cement producers to locate were other factors are more advantageous. One example of increased cement water traffic occurred in the Pearl River area. Port Operator China Merchants Shekou Port Service Company announced in 1995 that it was building a US$14 million bulk-cement terminal that would be used to import bulk cement from northern China to the Pearl River Delta.50


26

8. Environmental Considerations China has significant environmental problems. Ambient air levels of total suspended particulates (TSP) and sulfur dioxide (SO2) in Chinese cities are among the highest in the world. The World Bank believes that these high levels of pollution lead to approximately 200,000 premature deaths each year in urban areas. China’s contribution to global carbon dioxide (CO2) emissions is approximately 14 percent.48 Emissions reported declined between 1998 and 2000 as a result of the reported drop in coal consumption, although there are concerns that China’s energy statistics are at least partially flawed due to unreported coal production and use. In general, Chinese law provides for a system of fines for facilities that exceed pollution emission limits. These regulations cover several forms of pollution and are scaled according to the amount of pollution. Proceeds from fines are used for pollution abatement but also for industrial development. Firms can defer the amount they pay to the government by investing in abatement technology. In 1995, the last year for which data was available, China collected Yuan 3.2 billion in fines. Fifty-five percent of the proceeds were used for subsidies and loans to industry for pollution control. Forty-four percent was used for industrial development.51 In many cases, however, regulations were not enforced to the full degree. It is commonly asserted among environmental experts in China that it is cheaper to pay the fines than it is to limit emissions.5 By 2000, China expected to spend about 1.3 percent of its GDP on pollution control. Wastewater treatment was to receive the most attention followed by air, solid waste, and noise pollution. The cement industry spends less on pollution abatement than do other industries in China including the coking and refining industries.51 The cement industry is a prominent contributor to air pollution in China. In 1998, cement plants were responsible for over 40 percent of total industrial particulate (e.g. dust) emissions. (See Table 8-1.) Small particulates—those less than 10 microns in diameter—are especially damaging to human health because they lodge deep in the lungs resulting in increased mortality and morbidity. The vast majority of the reported emissions of particulates in China are from industrial processes not associated with combustion (grinding, sorting, etc.). Of these emissions, medium and small plants are responsible for the vast majority due to their obsolete equipment and production methods. Table 8-1. Particulate and Sulfur Dioxide Emissions from China’s Cement Sector

Particulate Emissions from

Industry (Million Tonnes)

Cement Industry Particulate Emissions (% of Total Industry)

SO2 Emissions from Industry

(Million Tonnes)

Cement Industry SO2 Emissions (% of Total Industry)

1991 14.2 22 11.0 5.0 1992 14.5 17 13.2 3.2 1993 15.0 25 12.9 5.2 1994 13.9 27 13.4 5.5 1995 14.8 29 14.1 5.5 1996 12.4 29 13.1 5.2 1997* 15.8 42 14.7 5.4 1998* 25.0 44 15.9 5.5 1999 21.3 -- 14.6 -- *Note that gathering of emissions statistics changed in 1997 and 1998 to include those from local levels. Source: [52]


27

In contrast to particulates, sulfur dioxide emissions from Chinese cement plants account for a much smaller portion of total industrial SO2 emissions. In sensitive regions of China, however, emissions of sulfur oxides from cement plants can cause extensive damage to agricultural output and human health. China has taken steps to minimize this damage by banning high sulfur coal in these sensitive areas and requiring the use of sulfur control technologies. For small plants, however, the cost of installing this equipment can be prohibitive. Chinese cement plants are also responsible for about 6 to 8 percent of the country’s carbon dioxide emissions. These emissions are produced in roughly equal parts from fuel combustion and the liberation of carbon dioxide from limestone at high temperature. Between 1996 and 1999, total energy consumption in China had reportedly declined by about 15 percent while cement production increased, although at a slower pace than before. The cement sector is therefore now responsible for a larger share of the country’s total carbon dioxide emissions, but there are some concerns that actual energy statistics are higher than reported. Increasing the energy efficiency of cement kilns is one way to reduce carbon dioxide emissions. Dry rotary kilns, including precalcinator kilns, are the most energy efficient technology currently available in China. Given the high fuel inputs required to produce cement, this sector will be a prime target for investment funds targeted to mitigate greenhouse gas emissions in the future. However, China’s most inefficient plants are also the ones that operate in the least transparent economic environment. As a result, high transaction costs will likely prevent the flow of investments that would otherwise appear wise on paper. Another way to lower carbon dioxide emissions is to boost product quality so that less clinker is required to manufacture a given strength of cement. The ratio of clinker to cement has declined steadily in China from 0.9 in 1980 to 0.82 in 1995, leaving little room for further reduction. Cement production is also responsible for a host of other environmental problems including contamination of local water sources, mercury emissions, excessive noise, erosion surrounding limestone quarries, and nitrogen oxide emissions. Enforcement continues to be one of the major obstacles to environmental improvement. Most cement companies do not respect current environmental legislation so the use of tougher environmental laws could be futile.10 However, in some regions, attitudes are beginning to change from “economy first, environment second” and “pollute first, clean up later.” The richer areas of Shanghai, Guangdong, and Beijing seem to be sources for change. There is a perception among foreign investors that their enterprises and joint ventures are targets for environmental enforcement. As a result, they tend to meet more of the environmental regulations than their domestic counterparts. Since 1989, emission limits for cement production have been set at 150 milligrams of particulates per cubic meter of exhaust gas. In April of 2000, however, China announced that emission limits would soon be reduced to 100 milligrams per cubic meter of exhaust. For comparison, cement plants in Europe must conform to a limit of 70 milligrams.14 Many of the small cement manufacturers in China will not be able to meet the limit without expensive upgrading of their equipment. Production facilities in western China have even fewer pollution controls than plants located in the east and south. As China is emphasizing western development, the government has promised that its new cement plants will be cleaner. While there will be some new construction in the west, most of the development will be improvements to existing plants. There is some evidence that Chinese citizens and local governments are beginning to respond to the country’s environmental problems. For example, Heidelberger Zement, recently relocated


28

a cement plant in Guangzhou outside the city. Local political actors requested the move. City officials were responding to a better-educated population that is beginning to appreciate the health effects of air pollution. However, there was a suggestion that the move was also made to free up valuable land in the city.10 In 1999 and 2000, and continuing into 2001, China reportedly closed hundreds of small, illegal cement plants. In 1999, cement plants with a total production capacity of 42 million tonnes were closed. The measures where taken to reduce pollution and to remove excessive production capacity. In June 2000, the Beijing Municipal Environmental Protection Bureau closed several cement factories in the Beijing area for violating environmental standards.53


29

9. Prospects and Future Developments China will likely continue to increase its production capacity (slowly) and improve cement quality (more rapidly). Government spending on infrastructure development and improvement through 2003 is expected to benefit the cement industry. As older, less efficient facilities are closed or upgraded and newer, more modern facilities are built, the country expects to add about 13 million tonnes of cement production capacity annually. Until recently, China had been expecting to increase annual production to 650 million tonnes by 2005, but this seems unlikely if thousands of small plants are simultaneously closed.54 Bulk cement is expected to become a larger proportion of Chinese cement output, reaching 182 million tonnes or 29.5 percent of total production by 2005. The Chinese government has enacted preferential policies to steer investment into bulk cement transport infrastructure, and some companies may find promising opportunities here. Use of specialty cements is also expected to continue growing rapidly, especially in relatively wealthy regions. Developments in 2001 are expected to continue at recent levels, especially since the government has designated new development zones in central and western regions. Provinces and cities given priority investment during the Tenth Five-Year Plan include Xinjiang, Ningxia, Qinghai, Shaanxi (including Xian), Gansu, Sichuan, Tibet (Xizang), Chongqing, Guizhou, and Yunnan (including Kunming). Eastern provinces should not expect new plants but will receive technology upgrades. China is expected to maintain its moderate growth in cement production and its trade balance is expected to remain positive. Foreign investment is expected to play a key role in growth in the cement industry during the 10th Five-Year Plan (2001–2005).16 These financing sources are expected to be guided toward large cement production lines in central and western China and other less economically developed areas. Dry process and precalcinator kilns are considered to be preferred technologies. Chinese authorities are supporting the move in the industry toward the dry method for cement production. It is expected that the dry method will account for 20 percent of cement production by 2003.55 Environmental issues will become increasingly important as China’s economy continues to expand. In many relatively wealthy urban areas, public pressure plays an important role in government planning and environmental enforcement. Enforcement of existing environmental regulations will become stricter in major urban areas, especially Beijing. China looks set to continue reforms that will make the economy more transparent and bound by rule of law. These changes will occur slowly however, especially in undeveloped rural areas. Even though new areas for growth appear relatively narrow compared to the mid 1990s, the absolute quantities remain substantial due to the enormous size of the Chinese market.


30

10. References

1. CIA World Factbook. 1999. http://www.odci.gov/cia/publications/factbook/ch.html.

2. “12 Million Workers Expected to Lose Jobs in 2000.” China Economic Times XXI(6), Series No. 1006. pp. 5-6. February 14, 2000.

3. Mark O’Neill. “Cement Sector Consolidation Gets Under Way.” South China Morning Post. September 4, 1999.

4. “China: Investments Sought for Building Industry.” China Daily. September 16, 1994.

5. Interview with Mr. Dung Van Anh, Lafarge representative in Beijing. March 3, 2001.

6. “China Took a Big Step.” Xinhua News Agency. February 19, 2001.

7. Li, Y.Q., “The Present Situation and Future Development of Chinese Cement Industry,” (unpublished report), China Cement Association, 2001.

8. “China Establishes Holding Group for State Cement Enterprises.” AFX (AP). September 2, 1999.

9. "Energy in the People's Republic of China" in Energy Policy and Structure in the People's Republic of China. European Commission, Directorate General XVII - Energy. Final Report Volume 2, Project No. DGXVII/A4/97-06. July 1999, pp. 287-424.

10. Telephone interview with Mr. Bruyere of Heidelberger Zement. Feb. 15, 2001.

11. “China: Cement Output Outpaced World Average.” China Post. October 29, 1995.

12. “Overseas Investors Plant Money, Grow Cement.” China Daily. May 4, 1995.

13. Construction Materials & Equipment in China Market. A/S/L Asian Strategies, Ltd. 2000. p.93.

14. Personal Communication with Li Yeqing , Huaxin Cement Company, Apr. 3, 2001.

15. The Global Cement Report. Tradeship Publications, Ltd. 2001.

16. “China’s Building Materials Sector Grows Rapidly.” Asia Pulse. September 16, 1999.

17. “Profile—China’s Cement Industry (March 1999).” Asia Pulse. March 22, 1999.

18. “Chinese Cement Industry Benefits from Post-Flood Boom.” Asia Pulse. October 8, 1988.

19. “China: China Casted as Lead Buyer of Cement Devices.” China Daily. October 28, 1995.

20. Antiake. A Survey of China Cement Industry. May 2001.

21. “New Cement Plant Eyed in Pangasinan: Philippines: Chinese Firm to Put Up Cement Plant.” Manila Bulletin. January 31, 1994.


31

22. “Egypt, China to Set up Giant Cement Factory in Sinai.” Xinhua News Agency. July 28, 1997.

23. “More Iranian Oil for Mainland: China: Imports of Iranian Oil Up in 1997–1999.” The Hong Kong Standard. May 6, 1997.

24. “China Exports Cement Plants to Iran.” Xinhua News Agency. January 23, 1998.

25. Sinton, Jonathan, “Energy Efficiency in Chinese Industry: Positive and Negative Influences of Economic System Reforms,” University of California: Berkeley, 1996.

26. International Energy Agency, “The Reduction of Greenhouse Gas Emissions from the Cement Industry,” IEA: Paris, 1999.

27. Sinton, J. “Energy Efficiency in Chinese Industry: Positive and Negative Influences of Economic System Reforms,” University of California: Berkeley, p. 74.

28. Construction Materials & Equipment in China Market. A/S/L Asian Strategies, Ltd. 2000. p.74.

29. “Bulk cement supply exceeds 100 million tons in '00.” China Online (www.chinaonline.com). Feb. 15, 2001.

30. “China Makes Good Progress in Production of Bulk Cement.” Asia Pulse. January 15, 2001.

31. “SNC Lavalin to Build Aluminous Cement Plant in China.” Canadian Corporate News. February 22, 1999.

32. China Economy. “7.2 The Chinese Cement Industry.” http://www.chinaeco.com/ emar/htm/c7n00h02.htm.

33. Barrie Cook, Managing Director Green Island Cement (Holdings). “China: Letter to the Editor: Cement Facts.” Window. November 3, 1995.

34. “China Closing Small Glass, Cement Producers.” Xinhua. June 11, 1999.

35. “China: Building Materials Industry to Cut Output.” Xinhua News. January 26, 1999.

36. “China to Shut Down Unproductive Glass and Cement Plants.” Asia Pulse. July 6, 1999.

37. China Daily, March 7, 2001, p. 1, 3.

38. Asian Cement News. July 2000. http://www.propubs.com/asian-cement/.

39. Cement Price in Guangdong Up: China: Guangdong Cement Price to Keep on Rising.” HK Economic Journal. February 25, 1998.

40. China Daily, March 5, 2001, p. 2.

41. “China: State Lifts Price Rein of Cement.” China Daily. April 1, 1996.

42. “China Says its Cement of International Quality.” New Straits Times, p. 2. August, 15, 1995.


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43. “China: Asian Woes Send China’s Cement Biz Crashing.” China Daily. June 15, 1998.

44. “China’s Cement Industry.” Business Focus. October 16, 1997.

45. “China’s Largest Cement Exporter Increasing Exports.” Xinhua News Agency. November 22, 1996.

46. U.S. Department of State. Foreign Trade Barriers, People’s Republic of China. http://usinfo.state.gov/regional/ea/uschina/prcnte99.htm

47. Bradbury, Nicholas. Infrastructure in China Plugging into Powerful Opportunities. Wanchai, Hong Kong: Economist Intelligence Unit. 1995: 186 pp.

48. Investment Strategies for China's Coal and Electricity Delivery System. Beijing: World Bank. 1995: 212 pp.

49. Coal in the Energy Supply of China. Paris: Organisation for Economic Cooperation and Development - International Energy Agency. 1999: 109 pp.

50. “China: Port Operator Builds Bulk-Cement Terminal.” The Asian Wall Street Journal. July 4, 1995.

51. Hua Wang & Ming Chen. “How the Chinese System of Charges and Subsidies Affects Pollution Control Efforts by China’s Top Industrial Polluters.” World Bank Working Series Paper No. 2198. World Bank: Washington, D.C. October 1999.

52. “China Energy Databook,” Lawrence Berkeley National Laboratory and China’s Energy Research Institute, May 2001.

53. “China: 25 Factories Ordered to Shut Down.” South China Morning Post. June 8, 2000.

54. “China: Cement Demand to Rise 8%.” China Daily, December 10, 1995.

55. “China: Building Materials Sector Improving.” Xinhua. July 17, 2000.

56. The Gale Group. Company Intelligence. Feb. 2001.

57. Subcontractor Report. May 2001.

58. United States Geological Survey, Minerals Information – Cement Statistics and Information, 1997. http://minerals.usgs.gov/minerals/pubs/commodity/cement/170397.pdf.

59. Cembureau, The European Cement Association, “Best Available Techniques for the Cement Industry, December, 1999. www.cembureau.be/Documents/Publications/

60. China Statistical Yearbook, 1999, p. 443.

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Appendix A Chinese Cement Producers with More Than 2000 Employees56

Company Location Established Employees Anhui Chaohu Cement Plant Chaohu 1959 3389 Anhui Donnguan Cement Plant Dongguan Town, Hanshan, Chaohu Prefecture 1950 3147 Anhui Ningguo Cement Plant Ningguo City, Anhui 1985 3454 Bamash Cement Plant Wuhu 1982 3325 Beijing Cement Machinery Factory Beijing Beijing Liulihe Cement Plant Beijing 1944 5359 Beijing Special Cement Plant Beijing Beijing Yanshan Cement Plant Shijingshan, Beijing 1959 2345 Benxi Cement Works Benxi 1936 2699 Benxi Gongyuan Cement Works Benxi 1942 3426 Bobai Cement Plant Bobai, Guangxi Dalian Cement Plant Dalian, Ganjingzi District 1909 3017 Dalian Shijin Cement Co Ltd.* Dalian 1958 2356 Datong Cement Plant Datong 1957 3905 Fujian Cement Ltd-Liability Co (Yong An)* Yongan, Fujian 1958 3306 Fujian Province Shunchang Cement Plant Nanping, Fujian 1991 2143 Guangdong Yingde Cement Plant Qingyuan 1972 2888 Guangxi Zhuang Nationality Autonomous Region Litang Cement Plant

Litang Town, Binyang, Nanning Prefecture 1983 2476

Guangxi Zhuang Nationality Autonomous Region Liuzhou Cement Plant

Liuzhou 1964 4353

Guangzhou Cement Limited Liability Co. Guangzhou City 1932 2435 Guiyang Cement Factory Guiyang, Guizhou Guizhou Cement Factory Guiyang, Guizhou 1959 2833 Guizhou Shuicheng Cement Plant Guiyang, Zhongshan District 1970 2308 Harbin Cement Plant Haerbin 1935 3735 Harbin Cement Plant No 2 Haerbin 1949 3175 Hebei City Jidong Cement Plant Tangshan City, Hebei 1985 2446 Huaihai Cement Plant Xuzhou 1986 2443 Huaxin Cement Shareholding Co Ltd. Huangshi, Hubei 1949 2584 Hunan Dongjiang Cement Plant Mugenqiao Xian Chenzhou Prefecture 1971 2437 Jiangsu Pizhou Cement Plant Xuzhou 1958 2164

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Company Location Established Employees Jiangxi Cement Plant Chenying Town, Wannian, Shangrao Prefecture 1974 3677 Jiangxi Lushan Cement Plant Jiujiang 1962 2178 Jilin Songjiang Cement Factory Jilin City 1960 5176 Jinan Huanghai Cement Co Ltd.* Jinan 1920 2240 Jining Zhangshan Cement Plant Jining 1976 2356 Jinxi Cement Plant Jinxian 1942 2330 Kunning Cement Plant Kunming, Xishan District 1957 2555 Lianjiang County Cement Plant Zhanjiang, Liancheng Town, Lianjiang County 1958 2470 Lunan Cement Works Tengzhou City, Shandong 1900 3131 Luoyang Cement Plant Xinan City, Henan 1958 2390 Mudanjiang Cement Works Mudanjiang 1953 3486 Nanjing Changjiang Cement (Group) Co. Nanjing City, Jiangsu 1923 5720 Nanjing Qinglongshan Cement Plant Nanjing City, Jiangsu 1974 2990 Qiqihar Cement Product Plant Qiqihaer, Fularji District 1954 2403 Shaanxi Hongqi Cement Products Factory Xian 1956 2195 Shaanxi Xinchuan Cement Factory Tongchuan, Shaanxi 1955 2359 Shaanxi Yanbe Cement Machinery Plant Xian 1969 2734 Shaanxi Yao County Cement Plant Tongchuan, Shaanxi 1959 4296 Shandong Building Cement Joint Stock Co Ltd.* Zibo 1951 2312 Shanghai Baoshan Cement General Factory Shanghai 1990 2500 Shanghai Cement Finished Products Factory Shanghai 1949 6800 Shanghai Cement Plant Shanghai 1949 3000 Shanghai Cement Products Factory Zhabei, Shanghai Shenyang Cement Machinery Plant Shenyang 1935 2208 Shijing Cement Plant Of Guangzhou Guangzhou, Guangdong 1958 3367 Sichuan Chongqing Cement Plant Chongqing, Sichuan 1937 3852 Sichuan Dukou Cement Plant Panzhihua 1967 2773 Sichuan Guang An Qujiang Cement Plant Huaying, Sichuan 1983 2282 Sichuan Jiangyou Cement Plant Jiangyin 1959 3147 Taierzhuang District Cement Plant Zaozhuang 1971 3550 Taiyuan Cement Plant Taiyuan 1935 2697 Tangshan Cement Machinery Manufactory Tangshan 1910 3706 Tangshan Qixin Cement Plant Tangshan 1989 4335 Tianjin Cement Plant Beichen District 1959 3053 Tonghua Cement Plant No 2 Tonghua 1975 2329 Weifang Cement Plant Weifang 1958 2638 Wushan Cement Plant Tianshui 1981 2424

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Company Location Established Employees Xiangxiang Cement Plant Xiangtan 1969 2888 Xinglong Steel Cement General Plant Ping'anpu Town, Xinglong County, Chengde

Prefecture 1970 3389

Xinjiang Army Nongbashi Shihezi Nanshan Cement Plant

Shawan County, Tacheng Prefecture 1963 2278

Xizhouzishan Cement Plant Wuhai City, Inner Mongolia Yanbian Miaoling Cement Factory Miaoling Daxinggou Town, Wangqing, Yanbian 1952 3037 Yongdeng Cement Plant Lanzhou 1957 3464 Yunnan Kaiyuan Cement Plant Xinan Lu, Kaiyuan, Honghe 1970 2307

* Privately-owned (all others are state-owned)

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Appendix B: Case Studies of Major Cement Producers57

Name Address Production, Processes Assets, Equipment Notes China Building Material Industry Association (CBMIA)

No.11 Sanlihe Road, Haidian District Beijing City 100831 Tel: 010-68354293 Fax: 010-68332658

One of 15 comprehensive directly managed by SETC; composed of business enterprises and relative social comities

Anhui Conch Group Co., Ltd.

209 Renmin Road Wuhu City Anhui Provnce, 241000 Tel:0553-8399080 Fax: 0553-8399065 [email protected]

Annual cement production capacity: 9.1 million tons Clinker production is to rise to 20 million tons by 2005 90% of production is by dry process Products: Portland cement, ultra fine and slag cement

Total assets of Yuan 5.5 billion; net assets capital is Yuan 2.96 billion Employees: 7829 2 4000 t/d, 3 3000 t/d dry lines 10 cement grinding stations

With foreign partner, TCC Hong Kong Cement Holdings Ltd. Registered on the base of Ningguo Cement Plant.

Huaxin Cement Co., Ltd.

897 Huangshi Street, Huangshi City Hubei Province 435002 Tel: 0714-6224971-471 Fax: 0714-6235204 [email protected]

Capacity: 10,000 t/d 2 new dry process lines; 3 hydro lines; Planed expansion includes new lines and refurbishing only kilns

Foreign Partner: Holderbank (Switzerland) owns 23.4% 1999 Revenues: Yuan 453.3 million; 1999 Net profit: Yuan 4.236 million

Daewoo-Shangdong Cement Factory (DSCF)

Jining City Shandong Province 273200 Tel: 86-537-4224700 Fax: 86-537-4227774

Capacity: 2.5 million tons Products: ASTM types I, II, III, and V cement

China’s largest production line with the most advanced technology in China’s cement industry

Foreign Partner: Daewoo Group (South Korea)

Suzhou Golden Cat Cement Co. Ltd. (GCC)

Xikuatang Mudu Town, Suzhou City Jiangsu Province 215101 Tel: 86-512-6265287,6262108 Fax: 86-512-6265155 [email protected]

Annual production value: Yuan 30 billion Golden Cat brand cement products

Well-developed water and land transportation Dry rotary kilns with surplus heat power generation

Foreign partners: Holderbank (Switzerland) and Singapore Yangtze Cement Holding Co.; Founded on Wuxian Mudu Cement Plant 1999 sales volume: 1.65 million tons

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Name Address Production, Processes Assets, Equipment Notes Hainan Kunlun Cement Enterprise Co., Ltd. (HKCE)

Old Town Industrial Exploitation Area, Chenmai City, Hainan Province Tel: 0898-7428754 Fax: 0898-5357613 [email protected]

Capacity: 500,000 t/y Projected production: 40,000 t/month

Enrolled capital: US$11.4 million Final investment: US$19 million Total area: 73,334 m

Foreign Partners: Mitsubishi Materials Corp. (Japan), Japan Pacific Cement Corp. Dadong Investment Co., unnamed Swiss company

Yantai-Mitsubishi Cement Co., Ltd.

Zhongqiao Town Qixia Country Yantai City, Shandong Province Tel: 0086-535-5571172 Fax: 0086-535-5571173

Capacity: clinker: 5000 t/d, cement: 1 million t/y Products: 525R cement, 425R cement

New 1 million t/y cement production line is planned

Foreign Partner: Mitsubishi Materials Corp. (Japan)

Anqing Cement Factory Co

No.263 Jixian North Road Anqing City Anhui Province 246005 Tel: 0556-5313769 Fax: 0556-5314429

Capacity: 500,000 t/y Products #525 and #425 Portland cement

Employees: 746, including 126 technicians 1 rotary kiln, 2 vertical kilns, 2 open circulates, 2 closed circulates, 1 milling and 1 open circulate milling 1 10,050 KVA power plant

Foreign partner: TPI Polene PCL (TPIPL) (Thailand)

China National New Building Materials (Group) Corp. (CNNBMC)

#2 Zizhuyuan Nanlu, Haidian District Beijing 100044 Tel: 010-68415577 01068428350 [email protected]

Products: cement, glass, liner gypsum board, light steel stud, rock wool covers

8 scientific research and design institutes; 17 subsidiaries Employees: 22,100

Beijing Dilding Materials Group Co., Ltd

JinYu Building 129A Xuanwumen Xidajie, Xicheng District Beijing 100031 Tel: 010-66416688 Fax: 010-66412086 [email protected]

Capacity: 3.5 mt/y of which 3.1 million tons are high-quality cement. Products: cement, concrete, walling materials, architectural and sanitary ceramics, insulation, doors and windows, wood processing furniture, artistic lamps, construction machinery.

Owns 158 production, research, design, development and construction enterprises, 80 are foreign joint ventures Cement subsidiaries include Liulihe Cement Plant, Beijing Cement Plant, and Yanshan Cement Plant.

Gezhouba Holding Co. Cement Plant

No.21 Quankou Lu, Jingmen Hubei Province 448032

Capacity: 3 million t/y Products: “Three Gorges” brand cement, special cement, #525 moderate heat Portland

The plant is connected to the Jiaozhi and Changjing railways, Yihuang highway 2 wet process production

The plant covers over 2.87 million m2 The enterprise is growing by 25% per year

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Name Address Production, Processes Assets, Equipment Notes Tel: 0724-2332305 Fax: 0724-2333189 [email protected]

cement, #425 low heat Portland, and slag, #525 and #425 high and moderate sulfur-resistant Portland Cement, #525 and #425 Sluggish Distention Moderate heat and low heat Portland Cement, #525 and #425 Portland Cement for road, oil well Cement of Grade A, D and G, Ultra fine Cement (including ultra Cement and improved ultra cement), slag powder of Grade S105, S95, S75, ultra slag powder and limestone powder, etc.

lines, 3 dry pre-calcining production lines Residual heat power plant

Harbin Cement Factory

No.102 Shuini Road Taiping District Harbin City Helongjiang Province 150050 Tel: 0451-7671910 Fax: 0451-7691789

Capacity: 1.4 million t/y Products: #425 and #525 cement, API oil well cement

Employees: 3254 including 800 specialized technicians 5 production lines; new dry line will be added Area: 2.23 million m2, Total assets: Yuan 532.56 million, Fixed assets: Yuan 394.01 million, Sales Income: Yuan 293.68 million

Largest cement enterprise in Heilongjiang with 5 production lines

Datong Cement Co., Ltd.

Kouquan Datong City Shanxi province Tel: 0352-4042623 Fax:0352-4042623 [email protected]

Brand name: “Yungang” cement Products: #525 and #425 Portland cement, road cement, middle-hot cement

1999: 465,959,917 yuan 2000: 481,670,700 yuan

Largest cement producer in Shanxi Province. Sales decreased in 2000 because of failing to update production line Subsidiary: Beijing East Chengcheng Industrial Company

Shanghai Building Materials Group

240 Beijing East Road Shanghai 20002

Products: water-proof building materials, thermal insulation materials, mechanical

One of top 500 enterprises in China 50 wholly-owned

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Name Address Production, Processes Assets, Equipment Notes Corporation (SMB)

Tel: 021-63219822 Fax:021-63290453

equipment subsidiaries, 52 holding companies

Zhenjiang Jianfeng Group Co., Ltd (ZJJF)

88# East Wujiang Road Jinghua City Zhejiang Province 321000 Tel: 0579-2326868 Fax: 0579-2324666 [email protected]

Capacity: 1.5 million t/y Products: #525 and #425 Portland cement and ultra fine cement, concrete, prefabricated components, Brand name: “Jianfeng”

1993 enrolled capital: Yuan 300 million Equipment: new dry process line and precalcining kiln About Yuan 100 million was invested in updates in 1998, which was to increase capacity by 1000 t/d

ZJJF was founded on the former Jinhua Cement Plant. ZJJF earned Yuan 34.08 million in 1999 with a net profit of Yuan 34.1 billion, headline income of Yuan 646 million

Tangshan Jidong Cement Co., Ltd.

Linying Road New District Tangshan City Hebei Province Tel: 0315-3244005 Fax: 0315-3244005 [email protected]

Capacity: 4.08 million t/y Brand names: “Dunshi,” “Jianfeng”. Products: P-II #525 cement, concrete, pre-fabriacte component, common machine

2 dry process lines: line 1 produces 4000 t/d, 1.5 million t/y; line 2 produces 2.58 million t/y. Upgrading and a new dry-powder producing line were planned for late 2001

1999 income: Yuan 550 million; 1999 profit: Yuan 218 million

Liuzhou Cement Corporation (LCC)

Taiyancun Liuzhou City Guanxi Province 545008 Tel: 86-772-3757267 Fax: 86-772-3883458

Capacity: 1.8 million t/y Brand: “Yufeng” Products: #525 Portland and #425 cement

Factory occupies 3.7 million m2 Employees: 3800 4 production lines: 3 wet lines from Czech Republic, 1 dry line from Denmark

One of China’s 500 largest enterprises. Founded on the Liuzhou Cement Plan LCC includes 3 branches: the plant, Dachang New-type Building Materials Co., and Liuzhou Yufeng PVC Products Factory

Zhejiang Sanshi Cement Co., Ltd (ZSCC)

No.422 Fengqi Road Hangzhou City Zhejiang Province 310001 Tel: 0571-5173966 Fax: 0571-5173966

Capacity: 2.5 million t/y. Products: #525 Portland cement, #425 CaCO3 Portland cement, PII Portland cement

1 dry process line; 3 wet process lines. Total assets: Yuan 1.2 B. Currently updating from wet to 2 dry processes with 2000 t/d capacity by 2003 and 5 million t/y.