1. 冶金工业经济发展研究中心 Shi Hongwei Apr. 1,2015 Policy Environment Analysis for China’s Steel Industry

2. Business Consulting Services Contents China Steel Development & Research Institute 1.New type of relation between government and enterprise 2. Main issues concerning China’s steel industry 3. Policies dealing with steel industry 1.New type of relation between government and enterprise 2. Main issues concerning China’s steel industry 3. Policies dealing with steel industry

3. Business Consulting Services 1.New type of relation between government and enterprise China Steel Development & Research Institute  Macro regulation  Market supervision  Public service  Social service  Environment protection Government function Main player of market economy  Self decision making  Self operation  Responsible for profit and loss  Participating in market competition fairly Market is decisive in resource allocation Enterprise

4. Business Consulting Services 1.New type of relation between government and enterprise China Steel Development & Research Institute Relation between national competitiveness, industry competitiveness and enterprise competitiveness Cluster effect Penetrating effect Crosscut effect National competitiveness Industry competitiveness Enterprise competitiveness (competitive advantage) Multiplier effect

5. Business Consulting Services 1.New type of relation between government and enterprise China Steel Development & Research Institute China as a large manufacturer Mid and low end of global industry chain China as a strong manufacturer High end of global industry chain Emerging countries attract mid and low end industries to be transferred due to low cost Emerging countries attract mid and low end industries to be transferred due to low cost New material (new type of steel material) is the basis for manufacturing sector steel industry New type material industry steel material New material New type steel material

6. Business Consulting Services 2. Main issues concerning China’s steel industry China Steel Development & Research Institute Overcapacity is prominent, widely-spread industry layout Imperfect market competition order (regulation, element allocation) Self innovation is insufficient

7. Business Consulting Services 3. Policies dealing with steel industry China Steel Development & Research Institute Standardization Requirement for Iron & Steel Industry (ver. 2012) by MIIT Product quality Environm ental protection Production capacity Technique & equipment Energy consumption & resource Safe production Guidance on Dealing with overcapacity by the State Council (2013) Notice on Dealing with Productivity Substitution of Certain Overcapacity by MIIT Revised law and new standards on the environmental protection, strict enforcement will be the new normal Action Plan for Transforming Iron & Steel Industry by MIIT Standardization Requirement for Iron & Steel Industry (ver. 2015) by MIIT

8. Business Consulting Services 3. Policies dealing with steel industry China Steel Development & Research Institute Polarization is worsening Percentage of steel production for main producers with various asset-liability ration in 2013 Percentage of steel production for main producers with various asset-liability ration in 2014 ALR below 70% ALR between 70% - 80% ALR between 80%-90% ALR above 90% ALR below 70% ALR between 70% - 80% ALR between 80%-90% ALR above 90%

9. Business Consulting Services 3. Policies dealing with steel industry China Steel Development & Research Institute Profit top 20 reach 22.75 billion RMB Profit top 20 reach 22.75 billion RMB Profit top 50 reach 11.9 billion RMB Profit top 50 reach 11.9 billion RMB Loss top 16 reach -11.83 billion RMB Loss top 16 reach -11.83 billion RMB Total profit of 86 member enterprises of CISA reach 22.82 billion RMB in 2013 Profit top 20 reach 31.95 billion RMB Profit top 20 reach 31.95 billion RMB Profit top 55 reach 10.24 billion RMB Profit top 55 reach 10.24 billion RMB Loss top 13 reach -11.75 billion RMB Loss top 13 reach -11.75 billion RMB Total profit of 86 member enterprises of CISA reach 30.44 billion RMB in 2014 A number of enterprises are on the verge of existing the market. Marketized shutdown begins to take effect, which is conducive to improving capacity utilization. The government shall assist the closed enterprises to deal with staff relocation and asset disposal.

10. Business Consulting Services 3. Policies dealing with steel industry China Steel Development & Research Institute Creating fair market competition Implementing the revised law and new standards on environmental protection, strict enforcement shall be the new normal, promoting enterprises to fulfill their responsibility in protecting the environment, complying with the revised law and standards and fair operation Adopting the Standardization Requirement for Iron & Steel Industry (ver. 2015), improving and standardize enterprises, with the focus on environmental protection and energy consumption. Adopting Action Plan for Transforming Iron & Steel Industry, promoting the development environment where enterprises share production elements, the market environment where business is operated by the law, and the fair and transparent market mechanism.

11. Business Consulting Services 3. Policies dealing with steel industry China Steel Development & Research Institute Action Plan for Transforming Steel Industry Resolutely stop new an added productivity, refocus on optimizing the layout Encouraging M&A, fostering advantage enterprises Developing circular economy, promoting green development Implementing innovation, promoting branding strategy Promoting convergence and intelligence in steel manufacturing Adopting go global strategy, elevating enterprises to global level Enhancing market regulation, developing fair market environment

12. Business Consulting Services 3. Policies dealing with steel industry China Steel Development & Research Institute Expected outcome of policy implementation Overcapacity alleviated Improved convergence Self innovation capacity enhanced significantly Great outcome in M & A Zero increase in total energy consumption, sharp decrease in total pollutant discharge

13. Business Consulting Services Thank you ! Shi Hongwei ； (010)85111221 ； shi-hongwei@263.net China Steel Development & Research Institute