Today’s meeting is very significant and perhaps it is the meeting with the most attending leaders from enterprises in the cement industry. It is an important milestone and also a watershed from overcapacity to stable and coordinated development in the cement industry. Today, I want to focus on two points: one is to take the opportunity and the other is to pay special attention to implementation.
Ⅰ. Taking the opportunity
Cement is indeed a very good product and has made important contributions to national economic development these years. Overcapacity in the cement industry is not a new phenomenon but an old one for these years. CNBM faced overcapacity when it entered this industry ten years ago. We can see that with the expansion of the market, the cement capacity far exceeds the speed of market expansion. What is worse, overcapacity was more severe last year when the sales volume in the market decreased. Through joint reorganization, CNBM has increased the concentration ratio in the cement industry from 12% to 58%, made lots of synergistic work of restricting capacity and supporting value and brought substantial economic benefit to other enterprises in the industry. Although we have experienced some hardships and disturbance, we are persistent in our faith. CNBM always is against the new construction of production lines out of line and I called for a stop of blind new construction and “shock therapy” in addressing overcapacity at the 2009 International Cement Conference.
Thinking back, I find that lots of truth is spoken of but no measure has been taken. Why? I remember the sentence in The Art of War “Confront a person with the danger of death and he will fight to live”. If the cement industry did not face the embarrassing situation today, then we would possibly not reach consensus in thoughts. Now it is the time to unify our thoughts. The central government’s big policy of promoting supply-side structural reform has rich connotation and the core is to cut overcapacity. If the overcapacity is not cut and addressed, then it is unsuccessful to just say supply-side structural reform. On May 9, People's Daily published an article about the relevant authority’s talk about the current Chinese economy, writing that we should unswervingly promote the supply-side structural reform and completely implement the five key tasks including cut in overcapacity and destocking. In the past, we always focused on the demand-side and formed the phenomenon of “adding water to flour and vice versa”, leading to the situation that the pot is full and there is no extra space for any water or flour. Therefore, we must reduce at the supply-side. As everyone is aware of the issue of overcapacity almost in all industries, we need to be resolute to solve it.
The promulgation of No. 34 Document of General Office of the State Council about Guiding Opinions on Promoting the Stable Growth, Structural Adjustment and Benefit Increase in the Building Material Industry will have an important effect on the building material industry especially the cement industry. Though some of the contents are only at the surface level, the whole industry has the directive and principled guidance, which is the result of joint efforts made by Ministry of Industry and Information Technology, CBMF and large-sized enterprises and brings the opportunity of restructuring the building material industry. Now, what we are concerned about most is whether the cement industry can act soon or not. If we miss this opportunity, then we cannot do it later when the other industries complete the adjustment and the cement industry lags behind. Therefore, we need to take and seize this opportunity and make concerted and joint efforts.
CBMF is a powerful association. For the cut in overcapacity this time, steel & iron and coal industries all have the financial and allowance support of central policies but the cement industry lacks the policy support in this aspect and only relies on itself. However, we have a strong association and the firm, strong and perseverant will of chairman Qiao. In these several years, in the face of the sluggish market, without the cement association to make vigorous efforts to turn the situation, then the whole industry may face more difficult situation. The central government emphasizes the political awareness and regulations of cadres of different levels. To the structural adjustment in the cement industry, the “political awareness” means actively promoting the supply-side structural reform and implementing the policies of the Party Central Committee and the State Council. “Regulations” require attending members of the cement association to strictly follow the requirements of the association to carry out different work. People should say farewell to the relaxed and separate practice in the past, follow the requirements of the cement association, keep the mind and action consistent with the association, promote the development of the whole industry and ensure the good benefits of the industry. The cement enterprises should organize without the state of disunity. Today, the cement association puts forward four suggestions, which may not meet the thoughts of all the enterprises in all places. However, we must understand these suggestions of the association, act now and perform real deeds to jointly safeguard the association authority.
The overcapacity cut in Japan in the 1990s took effect with the help of the government and cement trade union. The government and cement trade union unanimously acted, the enterprises followed and implemented the requirements of them unconditionally and 30 disperse small enterprises rapidly integrated into 3 large cement enterprises. Now with the help of the State Council, National Development and Reform Commission, Ministry of Industry and Information Technology and industry associations, the cement enterprises should seize and take this opportunity, integrate the smaller self into the larger self and integrate individual and partial interests into long-term and overall interests. Some enterprises think they do a good job and are unwilling to contribute to the industry. As a matter of fact, the good enterprises should play more leading role than others in the industry. Just as the old saying goes, “Prosperous ones should devote their energy to changing the world a better place, while people with less money keep their good personalities as well”, the large-scale and well-performed enterprises should contribute more to the industry and care more for people, which is the traditional virtue of Chinese nation. Just now, a cadre talked of people’s personalities, which is great. Why do some enterprises persist their old ways and dash around madly in the industry? The root reason is the people’s personality. Enterprise leaders should improve their own awareness and qualities. It seems that the enterprise is operated but actually it is about being a good person.
Ⅱ. Paying special attention to implementation
Just now, several entrepreneurs talked very well that I am not the insider in the cement industry. However, being an outsider has its own advantages because they sometimes can detect the problems like the “show” of emperor’s new clothes and some habitual mistakes made by insiders. In my opinion, paying special attention to implementation should focus on two aspects, namely, in the short term and in the middle and long term.
In the short term, the first is to adhere to the staggering production and enlarge the staggering scale. To the staggering production, people vary in their views. Some people believe that poor enterprises make the staggering production and good enterprises as well and good enterprises will protect the poor ones if they can control overcapacity. Because of the serious overcapacity in cement, good enterprises must participate in staggering production, too, which is like the same odd-even car ban on BMW and Alto in the traffic congestion of Beijing. In the face of overcapacity, the cement enterprises have no other choices and the easiest and most effective method is the staggering production. The same is in the steel & iron and coal industry. For example, countries restrict the production of coal directly for 276 days. Recently, the increase of 45 yuan for each ton of coal also leads to the growing cost and pressure of cement.
The second is to unswervingly eliminate the cement with strength grading of 32.5. Currently some experts still are against the elimination of cement with strength grading of 32.5, which makes people really confused. In the world, 42.5 cement accounts for 50% of the consumption and 52.5 and 62.5 accounts for the rest 50%. By contrast, in China, currently, 32.5 cement accounts for 60% to 70% of the amount in the market. The biggest issue of cement with strength grading of 32.5 is jumble. For example, 2 to 3 tons of blending materials are added into 1 ton clinker, making the bad quality of cement. We build production lines in some of the underdeveloped countries in Africa and the lowest strength grading of the local cement is 52.5. As the production technologies and equipment of cement in China are at an advanced level in the world, there is no reason to produce the cement with the low strength grading. Even in the countryside, farmers always select the quality cement with high strength grading in building houses. Supply-side structural reform develops from the lower end to the higher end. Xinjiang is located in the border area of China and has set a role model to completely eliminate the cement with low strength grading of 32.5. Therefore, developed areas such as Beijing, Tianjin, Hebei, Jiangsu, Zhejiang and Shanghai should learn from Xinjiang and the regional governments should take the lead to actively eliminate the cement with low strength grading. Thus, China at least can save 0.6 to 0.7 billion tons capacity and the key is to improve the cement quality.
The third is to unswervingly restrict new construction of production lines. Currently some enterprises still build new production lines with various reasons. In fact, whether the treatment of carbide slag or of rubbish, it can make the technical transformation on the current production lines and any enterprises or anyone should not find reasons to build new production lines. While 2009 No. 38 Document of the State Council did not allow the new construction, in the end 0.8 billion tons cement capacity newly increased on the local level. This time No. 34 Document of General Office of the State Council emphasizes that by 2020, it is not allowed to build new cement production lines and hopes that all the enterprises in all areas firmly conduct.
The fourth is to enhance regional coordination. The cooperative work in the national cement market is uneven and some areas are good while others are poor. In good areas, there are leading big enterprises and responsible regional industry associations and everyone is relatively sensible, while in poor areas, big enterprises do not take the lead, small enterprises do not follow, regional industry associations do not act and the situation must be bad. Currently, the cement industry needs to restrict output, reach the balance between supply and marketing and realize the support value and recovery value in the price of cement. Even if the cement enterprises make the staggering production, the price will not rise without coordination. Whether the enterprises take an active part in restricting capacity and supporting value will directly impact the cement price. Only an enterprise with benefit and fund can consistently make technical innovation, adjust the structure, make transformation and upgrade; only an enterprise with benefit can raise funds to cut overcapacity and get rid of backward capacity. The second half of the year is the peak season of cement so we need to seize the opportunity and build the coordinated center with the association as the main body. Also, with the big enterprises leading and small-and medium-sized enterprises participating, everyone should work hard to realize the good benefit this year.
In the middle and long term, the first is to enhance regional joint reorganization. Now our reorganization is not enough, so we can learn from the reorganization thought in Liaoning, where with relatively stable market, the leading three enterprises have a market share of 70% and enterprises can realize regional joint reorganization through the methods of capacity interchange and joint stock, but the key is to do. In the past few years, CNBM reorganized over 800 cement enterprises with the capacity of 0.45 billion tons, which is not an easy process. If enterprises want to operate efficiently after the reorganization, then they need to consider closing extra factories. In the past, we built factories for making money and nowadays we close them for the same reason. The past thought is to produce more and earn more. However, last year, the sales volume of national cement was 2.35 billion tons and did not yield expected benefit. Now, only with the balance between production and marketing, with less production and overcapacity in cement and by reorganizing and closing factories, can we make money. And enterprises with profits can operate better and solve all the problems. People may be concerned how to treat closed factories. Actually, we can do lots of work in transformation, upgrading and technical innovation. CNBM prepares to make those closed cement factories into fabricated PC buildings, make cement raw materials into products and make the downstream cement industry in order to improve additional value and develop from the low end to the middle and high ends.
The second is to object to unfair competition. Laws and regulations of regulating the healthy market operation include Law for Countering Unfair Competition, Chinese Antimonopoly Law and Regulations on Anti-dumping. Among them, Law for Countering Unfair Competition aims to encourage and protect fair competition, curb unfair competition, protect the legal rights and interests of operators and consumers and object to operators disturbing the market order with the price lower than the cost and damaging the legal rights and interests of other operators. Cement is a non-traded non-storage raw material product with a sales radius of 200 km and it is not suitable for long-distance transportation. We need to protect the regional markets doing a good job of cutting overcapacity and object to some enterprises making low price maliciously to enter the good market area and damage other price. There is good and bad competition. The good competition is good for social development while the bad one is harmful to social development. Unfair competition, excessive competition and cutthroat competition are bad competition. Cement enterprises need to pursue mutual benefit and reciprocity, learn from others’ strong points to offset weakness, pursue benign competition and advocate the principle of altruism. Altruism is finally for one’s own benefit and putting oneself in the place of another is same with judging another person’s feelings by one’s own.
The third is to try to obtain the policy support from the national and regional governments. With the promulgation of No. 34 Document of General Office of the State Council, we need to obtain policy support of regional governments. Like the disaster-stricken areas such as Liaoning, Inner Mongolia, Yunnan and Guizhou with serious overcapacity in cement, relevant government departments can learn from the experience of Xinjiang and the enterprises also need to actively strive for beneficial policies. Although the cement industry faces the difficulty now, the road is under one’s own feet and we need to grasp our destiny in our own hands. I have full confidence and optimism in the future and I hope that everyone can work hand in hand, follow the supply-side structural reform of the Party Central Committee and the State Council, spirit of No. 34 Document of General Office of the State Council and the requirements of CBMF, actively promote different work, change the destiny of cement industry and create new brilliant performance.