WHILE China's measures to bolster its oil, coal and steel industries regularly capture the headlines, the government's quiet campaign to overhaul the country's enormous yet highly fragmented cement sector is no less ambitious.
The National Development and Reform Commission (NDRC), the powerful economic planning body, is leading a restructuring exercise by eight government bodies that could result in the closure of many small-scale firms over the next five years.
The closures are aimed at heading off overcapacity and diminishing profits from excessive expansion. Domestic cement output is already up 20 per cent this year as the industry rushes to keep pace with breakneck construction.
Beijing's efforts to consolidate its sprawling cement sector - the world's largest, accounting for 40 per cent of global production - is likely to benefit larger, established producers, including some foreign investors.
In spite of the building boom, which is now spreading from the coast into the country's interior, Beijing believes the time is right to streamline the cement industry. It wants to raise overall output while dramatically reducing the number of producers. China manufactured 1.06bn tonnes of cement last year, with output growing an annual average of 12 per cent in the past five years.
The NDRC wants output to reach 1.25bn tonnes by 2010. By then, Beijing hopes to reduce the number of cement enterprises from about 5,100 to 3,500, mainly by pressuring small ones to close or merge with larger rivals. The sector employs some 1.35m people.
Despite its size, China's cement industry is barely profitable. The industry registered just Rmb8.0bn ($1.0bn) in profits in 2005, down 39 per cent from 2004, the NDRC said. More than a third of China's cement makers reported losses last year.
Even the strongest domestic firms trail global leaders. "Even though our country's cement industry has developed fast in recent years, overall there is still a gap compared with advanced overseas standards," said one NDRC official.
Overcapacity is a problem, as total demand last year was estimated to be less than 1.0bn tonnes. Experts say over-production is most serious on the more developed east coast, especially along the Yangtze River Delta, near Shanghai.
"There are a large number of very small plants with old technology that are not attractive to any cement players but supported by the local government due to employment," says Cyrille Ragoucy, CEO of Lafarge Shui On Cement, a local venture of the French group.
Industry consolidation is likely to benefit the most efficient producers. As part of its "go out" policy, Beijing wants to develop a small number of cement champions that can compete on the global market.
Until now, there been only limited foreign investment in the country's cement sector. But a few European companies have been carving out regional markets within China, especially in the past 18 months.
Lafarge, which operates a large business in China's southwest with Hong Kongbased Shui On, bought the parent company of Sichuan Shuangma Cement for $38m late last year. And Germany's Heidelberg Cement has a venture with Tangshan Jidong Cement in northern Shaanxi province.
Holcim, the Swiss firm, this year paid $125m to raise its stake in Huaxin Cement, which operates in the Yangtze River Delta and central Hubei province, from 26.1 to 50.3 per cent.
Because Beijing's refornmmus are mainly targeting local cement producers, foreign firms are less likely to be affected. Aside from improving the dynamics of the market, government is aiming to clean up the environmental record of the industry, which emits dangerous toxins such as dioxin. The worst offenders often tend to be local firms.
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