Steel prices have been dropping continuously, leading to increasing losses in the industry, and Chinese steel companies are facing severe challenges. In recent times, 32 steel plants have announced shutdowns for maintenance, with some facilities stopping production due to bankruptcy. One of China’s billion-dollar steel enterprises, Jiangsu Delong Nickel Industry, has also reached the brink of bankruptcy. Experts attribute the crisis to the contraction of the real estate and automotive industries, which have dealt a severe blow to the steel sector. However, there are deeper underlying reasons, with the mass bankruptcies in the Chinese steel industry being a typical case of the failure of a planned economy.
Since July 2024, one of the billion-dollar steel enterprises, Jiangsu Delong Nickel Industry Co., Ltd. (referred to as “Delong Nickel Industry”), along with its 27 subsidiaries, has been gradually undergoing court-ordered reorganization, facing financial struggles.
Founded by the self-proclaimed “private steel tycoon” Dai Guofang, Delong Nickel Industry once ranked as the world’s second-largest stainless steel supplier after the Qing Shan Group. The company operated production projects in various locations, including Yancheng Xiangshui, Changzhou Liyang, Xuzhou Jiawang, Taizhou Dainan in Jiangsu province, and overseas projects in Indonesia. However, after rapid expansion, the company faced a financial crisis, leading to insolvency.
The 28 Delong Group companies undergoing reorganization are situated in Xiangshui, Xuzhou, and Dainan.
Three subsidiary companies in the Liyang project are not included in the reorganization list. Previously, state-owned Liyang Capital had quietly taken control of these three companies. Disputes over debts arose between the subcontractors of the Liyang project and Liyang Capital after changes in the ownership structure, as Liyang Capital, as a controlling shareholder, refused to pay outstanding construction debts exceeding 1 billion yuan.
China’s steel industry is facing structural issues, marked by overcapacity in low-end supply and significant imports in the high-end segment, leading to a problem of being “big but not strong.” In the first three quarters of 2024, the national crude steel output reached 768 million tons, but the total profits of key steel enterprises decreased by 56.39% year-on-year.
Since August 2024, Chinese steel plants have been facing increasing losses, with plummeting profit margins, difficulty in selling steel products, weakening demand, and a surge in maintenance shutdowns. As a result, 32 steel plants in China have announced production halts for maintenance, leading to bankruptcies primarily due to the continuous decline in steel prices.
On July 30, 2024, Tangshan billet prices hit a four-year low at 3,120 yuan per ton, dropping significantly from the four-year high of 5,820 yuan per ton on May 13, 2021, marking a decrease of 2,700 yuan.
Data from the Chinese National Bureau of Statistics in mid-November 2024 showed a comprehensive decline in steel prices in the national circulation market.
Several mainland Chinese self-media outlets have raised questions, pointing out that with many steel plants declaring bankruptcy and steel prices plummeting, the losses are significant. They questioned the reasoning behind the price drops for such a crucial material that should be in high demand, wondering if China no longer needs steel.
A prominent figure in the mainland Chinese capital circles, Xu Zhen, told Epoch Times that the steel industry’s two main customers, the real estate and automotive industries, experiencing simultaneous declines, have been catastrophic for the steel sector.
American economist David Huang also highlighted to Epoch Times that for over two decades, the real estate sector had accounted for over 40% of steel consumption, making the contraction of the real estate industry a direct trigger for the steel industry’s collapse.
He explained that from the demand perspective, the steel industry had heavily relied on China’s rapid infrastructure development and the booming real estate sector. However, with both sectors now stagnating and facing financial difficulties, the demand for steel has sharply declined. After over two decades of infrastructure development, most of China’s required infrastructure and buildings have been completed. Consequently, the issue of overcapacity in the steel industry is expected to persist.
However, Huang pointed out that the plight of the Chinese steel industry extends to deep-rooted economic issues, revolving around the dependency between local finances and state-owned enterprises. Beginning from Mao Zedong’s era of industrialization, China has built numerous steel plants, often controlled by state-owned enterprises. In recent years, state-owned enterprises have acquired private ones, leading to a dominance of state-owned enterprises and the adoption of policies to sustain the steel industry, resulting in a complex bureaucratic model.
In August of the previous year, China’s Ministry of Industry and Information Technology announced the suspension of new steel capacity replacement programs, ceasing the announcement of new steel capacity publicly. Any violators would be reported for illicitly increasing steel production capacity, signifying a halt to new steel plant constructions. Xu Xiangchun, Director of Information at Shanghai Steel Union, explained that during the actual implementation of the capacity replacement process, enterprises and local governments had found ways to indirectly increase production capacity, exacerbating the overcapacity issue in the steel industry amid dropping demand. Thus, the halting of capacity replacement aimed to put a sudden stop to capacity expansion.
Huang emphasized that the entire structure of China’s economy, particularly its industrial structure, is inherently flawed.
“The first aspect is driving GDP growth through real estate and infrastructure; the second is the continuous expansion of government debt, with these infrastructure projects often sustained by government debt, which is unsustainable; and thirdly, the steel industry, being a state-driven sector, operates mostly on a planned economy model, which is doomed to fail within a market economy.”
The substantial decline in the economic performance of steel enterprises is an industry-wide issue, sparking salary disputes. The significant steel enterprise in China’s western region, Shaanxi Hanzhong Steel Group, has been withholding wages, social insurance, medical insurance, and other payments for thousands of workers over the past decade, totaling hundreds of millions of yuan, resulting in hardships for the workers. Workers have continuously protested at the county government offices to demand their unpaid wages, reaching a peak on November 6th and 7th, 2024.
Huang stressed that the wave of steel plant bankruptcies would initially lead to mass unemployment and have a profound impact on the financial system. As many steel plants are publicly listed companies, their bankruptcies would disrupt China’s stock and financial markets, leading to a surge in non-performing loans for banks.
He believes that the mass bankruptcies in China’s steel industry epitomize the failures of the planned economy model, marking a typical example of its inevitable collapse. Similar to the past shared bicycle business and the current so-called new energy vehicle industry, a plethora of closures is the ultimate outcome.
Xu Zhen expressed that the authoritarian nature of the CCP’s regime and the policymakers’ economic ignorance have led to widespread deflation and triggered waves of unemployment and bankruptcies across all industries. It’s not just the steel sector; almost every industry is destined for restructuring and transformation, differing only in the pace. Starting from the steel industry, 2025 will witness a devastating blow to the CCP’s “Belt and Road” initiative, surpassing economic limits.