1. Introduction

Baosteel Group is the trade name of the Baoshan Iron & Steel Co., Ltd. (“Baosteel”), and it is considered to be one of the largest and technologically advanced steel manufacturers in China. Baosteel has been an integral part of China's modernization process since its inception and has gone through several important stages – startup, reorganization, and global expansion. These changes have allowed the company to respond to shifts in the domestic and international markets while continuing its competitive position in the steel market.

1.1. Development history of Baosteel group

Baosteel was founded in 1978 during the economic policies known as ‘Deng Xiaoping’s Reforms [1].’ The company was set up in the Baoshan District of Shanghai to improve the productivity of Chinese steel making. In its initial stages, Baosteel was well established due to government initiatives and technological support from foreign Japanese and German firms. This phase helped set the groundwork for meeting the steel production and automation needs of the industry’s demand. Baosteel’s internationalization phase began in the early 21st century when it started venturing outside of China’s borders [2]. The company carried out joint ventures, acquisitions, and strategic alliances with various steel companies around the globe, thereby consolidating its supply chain and market presence. Baosteel also had to deal with difficult international trade laws and other environmental issues as a means to achieve sustained growth. With the merger in 2016, Baosteel along with Wuhan Iron and Steel Corporation, formed China Baowu Steel Group and became the second largest steel manufacturer in the world.

1.2. Background of the case project and research purpose

Given the quickening pace of technological advancement and increasing focus on sustainability, Baosteel is undertaking a strategic project aimed at improving production efficiency, lowering carbon emissions, and increasing their presence on the global market. This project corresponds to the industrial policy of China that focuses on the digitalization of the industry, green manufacturing and robust supply chains. The objective of the research is to evaluate the strategic, financial, and legal aspects in Baosteel’s project. Consequently, it discusses the scope of the project, its technological components, financial issues, and legal risks. The analysis is expected to highlight how Baosteel deals with industry challenges with a focus on sustaining the company’s long-term operational and competitive position globally.

2. Project features

Baosteel Group’s strategic endeavoring project is a major step towards the improvement of this company’s technological, operational, and marketing capabilities. This step is consistent with China’s general industrial policy objectives, which focus on innovation, sustainability, and internationalization. The project is expansive in its scope, which encompasses new automation of steel production processes, lowering carbon emissions, and improving the supply chain. It also intends to respond to critical issues like volatile prices of raw materials, trade barriers, and compliance with laws. This chapter, thus, is intended to shed some light on Baosteel company’s development in the context of the changing world of steel by discussing the scope of the project and strategic goals and challenges of the company.

2.1. Project scope and objectives

The main goal of Baosteel Group’s strategy focuses on improving its technological skill set, operational efficiency, as well as competitiveness in the market. The specific goals include improvements in the automation of steel production processes, carbon emissions, and supply chain management.

Table 1: Baosteel Group's Annual Revenue (2019-2023)

The initiatives are meant to mitigate the challenges prevailing in the industry such as volatile raw material costs, trade barriers, and regulatory compliance. Although Baosteel does not publicly provide specific numbers for yearly investments, their financial performance offers some information regarding Baosteel’s investment capability. [3] reports that in 2023 Baosteel's business revenue amounted to about 345.5 Yuan, which was a 6.3 percent decrease relative to last year’s revenue, and a net profit of 11.94 billion Yuan, which is a 2 percent decrease through the year (refer to table 1 and 2). The numbers underscore strong financial performance, which provides a sound basis for continued investment into strategic projects.

Table 2: Baosteel group's net income (2021-2023).

The entire landscape of the steel industry in China also did not escape volatility. In both 2019 and 2020, Fixed asset investment in the region appeared frozen at 94.8 Blin CNY, but then jumped to 127.7 Blin CNY in 2021 (Table 3), reflecting a drive to upgrade production facilities. Ranged production volumes of steel to China also had their ups and downs. According to Table 4, 76 million tons were produced in December 2023 while various peaks of production existed at 81.9 million tons in January and 78.4 million tons in November 2024, before slumping to 7.18 billion tons in 2023 (Table 5). Baosteel sustained a gradual decline of their total assets over the years, from 59.68 billion dollars in 2021 to 53.05 billion dollars by 2023, yet total debt to the firm remained at an aberrant peak of 7.18 billion dollars in 2023 (Table 5).

Table 3: China's Steel Industry Fixed Asset Investment (2019-2021)

Chinese, like other regions, have lower bounds for the steel sector. They reported the industry’s total profit in 2022 was 94,262.985 million RMB as compared with 345,884.529 million RMB in 2021, indicating a lagging performance. This aberration is indicative of the industry’s sensitivity to the market and highlights the need for investment for retaining competitive edge. To achieve carbon peak and carbon neutrality, China has enforced environmental regulations, limited the establishment of new capacity, optimized the structure of the steel industry, and enhanced the utilization of capacity.

Table 4: China's Steel Production (2023-2024)

The acquisition and mergers, including Baosteel’s merging into China Baowu Steel Group, resulted in higher market concentration with better competition and operational performance [4]. Chinese steel companies are subsidized to go abroad under the Belt and Road Initiative for promoting global business development and infrastructure investment.

Table 5: Baosteel Group's Total Assets and Debt (2021-2023)

2.2. Technological innovations

Baosteel has been the leader in the application of new technologies in the steel industry by introducing new automation processes and green technology practices for improving production efficiency and reducing environmental pollution. Intelligent continuous casting line technology has been one of Baosteel’s most recent investments involving the purchase of new continuous casting machines for use in other industries [5]. Challenging the quirkiness of normal industrial operations, ‘dark factories’ is a proactive Baosteel concept that allows the company to use a high degree of mechanization, which enables it to limit human touch to almost null. The use of robots and intelligent systems as measures of control for highly intricate manufacturing processes results in higher productivity and effectiveness as well as cost efficiency. The production line of silicon steel sits as a region of art in processes and manufacturing technologies enabling the production of non-oriented silicon steel of high grade, sought after by new energy vehicles manufacturers.

Baosteel implements the unique grouping of production lines as a consorted effort of grouping strategy [6]. Aimed at inter-linking several production lines to function simultaneously, this phenomenon allows selling orders for further fabrication of the components without rigid restraints and within ever-changing market conditions. The combined utilization of several production lines causes considerably greater coherence in the quality of goods produced and optimization of resources spent to achieve this. Baosteel remains committed to the automotive industry’s heightened safety and performance standards with their ultra-high strength steels (UHSS) that boast a tensile strength of 1,200 MPa. This, along with other developments, has enhanced Baosteel’s competitiveness among other international steel producers. Commercial vehicle bumper reinforcements utilize cold-rolled steel with a 1,470 MPa tensile strength developed by JFE Steel Corporation. The steel’s production relies on JFE’s own “JFE-CAL” water-quenching continuous-annealing line, which gives the steel high strength while controlling the alloy content to lower the chances of delayed fractures. SSAB has met the market need for decreased weight and improved crashworthiness with the introduction of new high-strength steels, including the cold-rolled martensitic steels with a tensile strength greater than 1,700 MPa designed specifically for automotive structures. POSCO also joins the industry with the 980 MPa-class UHSS, advanced for use in torsion beam axle and wheel disk components. This advancement is in-step with industry approaches towards enhancement of fuel economy via lightweight automotive parts.

2.3. Baosteel carbon reduction strategy

Baosteel's advanced non-oriented warm-rolled silicon steel emission of harmful gases during production is enhanced with other processes in the production lines of the non-oriented silicon steel. In the production of new energy vehicles, this technology is critically important and helps achieve universal targets for conservation of natural resources, optimum use of materials, and pollution reduction, Baosteel strives for. The company is also working on the integration of a modern hydrogen energy system as part of their low carbon conversion strategy. The initiative by Baosteel to invest 2.72 bn yuan in December 2020 created a facility that reduces the emission of harmful gases, enhancing the conservation of available resources. Carbon emission has further been reduced by the launching of an iron production line that is dependent on hydrogen and coke oven gas. The Memorandum of Understanding signed by the Baosteel Group in 2022 included the use of carbon reduced steel aimed at lowering emissions by 50% by 2026. These measures are directed toward improving energy efficiency and a significant decrease in carbon emission.

2.4. Supply chain and market dynamics

Baosteel Group develops and controls an extensive strategy that goes along with their procurement as well as logistics and inventory management processes aimed at analyzing the supply chain alongside market trends [2]. To narrow its market risks regarding raw material provision, Baosteel strategically networked. Baosteel introduces additional cost saving practices alongside advanced inventory management systems, bolstering operational efficiency. The company’s entire logistics workflow, which starts from the steel product running off the production line and ends in the storage and shipping depots, is controlled by intelligent remote systems. For certain types of products, Baosteel uses tactics such as ‘zero inventory management’ which further improves their inventory management [7]. Baosteel has embedded technologies such as RFID systems which allow them to track and manage their supply chain in real time. ​

3. Financial risk

3.1. Investment and capital allocation

Baosteel Group invests in the company's capital in a way that matches their long-term corporate growth goals. The company’s growth spending focuses on increasing their capacity, advancing technology, and international spending. In particular, Baosteel intends to spend about USD 437.5 million on building its first steel plant outside China in Saudi Arabia together with Saudi Aramco and the Saudi sovereign fund [8]. Such a step towards Baosteel is aimed at global diversification and relocation of production units.

For Baosteel, capital allocation is a middle priority with the company having 463.84 million dollars new investment which is aimed at augmenting its production capacity, adopting modern technologies, and expanding its global reach, all of which will support its long-term growth strategies. By focusing on these initiatives, Baosteel seeks to improve its global market position and capture sustainable growth in the highly competitive steel industry. As per [9], the company’s strong market position allows for an ‘A+’ long-term issuer default rating, which boosts credibility and subsequently enables the company to access favorable financing options.

3.2. Market volatility and revenue risks

3.2.1. Exchange rate fluctuations

The company Baosteel, being a key force in the global steel market, faces an exchange rate risk owing to its extensive trading activities. Changes in currency exchange rates have a direct influence on the company’s ability to sell its products and the expenses incurred for purchasing raw materials. On the other hand, if the yuan appreciates, the company would face diminished export advantages and profit margins would benefit, but the cost for raw materials would drop. To reduce these impacts, Baosteel uses several hedging methods designed to stabilize cash flows, including modifications in counterclaiming. Such measures serve critical purposes in times of dramatic changes in exchange rates. As an illustration, a depreciation of the Yuan against the US dollar would increase the import cost, causing an increase in production expenses. Entering into forward contracts that would otherwise lock the exchange rates would be a mitigation measure for such challenges.

3.2.2. Dynamics in the balance of payments

Domestic balance of payments has significant impacts on the operations of Baosteel as it depicts the revenue economic relations with the world. Based on the balance of payments, economic deficit signals weak performance in trade, which is detrimental to Baosteel as it reduces demand. Positive changes in the economic environment, such as the surplus, could help Baosteel increase sales of steel products, while making sure secondary demand to export output is not enlarged. Negative economic growth could be caused by a slowdown in the European Union economy, which is a hindrance to Chinese exports, and thus, steel exports, which would hamper Baosteel’s revenues and profit. Baosteel has to be sure it is proficient with macroeconomic parameters so they are not forced to change headquarters every other year due to unstable economic conditions.

3.2.3. Volatility when sourcing raw materials for iron production

From a technical perspective, the procurement of raw materials such as iron ore and coking coal exposes the company to price volatility due to the world demand supply mismatch, geopolitical crisis, and market hunting. To manage the risk, Baosteel has adopted a two-way hedging strategy that uses hedging contracts to set prices and decrease uncertainty regarding raw material expenses [10]. Utilizing this method enables the company to manage production costs and simultaneously offer competitive prices for their products. In addition, Baosteel has also participated in upstream ventures like owning shares in certain mining operations in an attempt to ensure steady availability of raw materials to avoid adverse effects of excessive market changes.

3.2.4. Market conditions affecting steel product prices

The prices for steel goods are dependent on market demand, level of competition, and the firm’s capacity to produce. Economic weakness, especially in certain major industries like construction and manufacturing, tends to depress the demand, accompanied by lower prices of steel. In the first nine months of 2024, Baosteel suffered a 29.56% fall in net profit owing to the sharp decrease in demand for steel along with the plummeting prices, which resulted at least partly due to the softening demand for properties [11]. To combat such realities, Baosteel modifies prices, seeks out new markets and uses a broader strategy to face diverse customer requirements. The company also concentrates on improving the efficiency of operations and cutting costs of production to sustain profitability in times of abnormal fluctuations.

3.2.5. Effects of economic downturns and trade barriers

Economic downturns tend to depress demand for steel products, which in turn can lead to slower industrial activity. In such cases, Baosteel might have lower sales volumes together with rising competition, which results in reduced profit margins. Limiting and controlling trade activities can make the situation worse by imposing market access restrictions while increasing costs of doing business. Baosteel faced a reduction in the market access and experienced higher export costs due to the imposition of 25% tariffs on Chinese steel imports by the US in 2018. Consequently, Baosteel supports the elimination of all forms of trade distortion, participates in trade policy advocacy, and works to improve its competitive position through innovation and better quality [12]. The company continues to penetrate less trade restricted regions through strategic alliances and establishments to ensure its competitiveness in the global market.​

3.3. Credit and liquidity risks

Even though the company's debt profile is healthy, Baosteel Group's rating was adjusted to negative on market challenges and their long-term issuer default rating A+ was assigned in February 2025. Baosteel at that time reported nearly 99 CNY billion in cash and cash equivalents but had around 130 CNY billion in short-term debt which suggests decent liquidity positioning. Company’s financial leverage with a measured debt to EBITDA ratio around 4.0x demonstrates the level of strategic integrations and expansions the company has put in, but at the same time, the company becomes exposed to economic volatility. While leverage improves returns at favorable conditions, it brings risks on economic slowdowns that threaten project viability and sustainability. Higher credit and liquidity ratings offset risks, however, with market conditions being as they are, simply being prudent with finances is not an option.

3.4. Cost overruns and project delays

Baosteel Group understands that stalled projects and expenses beyond the set budget can adversely affect business operations and profits. As a risk mitigation measure, the company has taken comprehensive steps to manage risk, including the formulation of spending contingency plans designed to cover unexpected events to complete the projects on time and avoid going over budget. Baosteel experienced cost overruns when constructing the Zhanjiang steel plant over a period when the price of raw materials was high and a high cost of compliance to environmental guidelines. Furthermore, Baosteel focuses on aggressive vendor negotiations, proactively contracting with suppliers and contractors that clearly outline roles, responsibilities, and expectations. By taking these steps, the company can avert disruptions, sustain project feasibility, and honor its commitment to functional superiority.

4. Legal risks

4.1. Risks associated with international trade friction

Due to Baosteel’s competitive stance within the international steel market, the company has faced a myriad of anti-dumping and anti-subsidy investigations. Such trade frictions stem from the claims that several Chinese steel producers, including Baosteel, engage in the sale of steel products below the market prices or receive subsidized government funding that distorts competition. U.S. Steel Corporation charged Baosteel along with other steel producing companies from China for industrial espionage, and for not paying trade duties in the middle of 2016. The USITC started looking into these accusations in May 2016 [13]. The investigations are often a result of the imposition of tariffs, quotas, or other barriers that severely restrict Baosteel's ability to key markets and negatively impact the company's financial position. To lower the chances of risk, Baosteel undertook legal defenses, compliance improvement, and active participation in international trade concerning the resolution of disputes.

4.2. Contractual risks: The 2012 steel trade crisis

Legal issues concerning Baosteel’s operations stem largely from reputable contractual disputes and are most clearly illustrated in the steel trade crisis in 2012, where Baosteel suffered legal proceedings and contractual disputes worth hundreds of millions of Yuans [14]. The 2012 disagreements stem from actions such as contract breach, failing to perform as explicitly outlined, or simply different perspectives on a human draft. The 2012 crisis provided a revelation on the need of having international contracts that are lucid, accurate, and enforceable. To mitigate such risks, Baosteel endeavors to assume more responsibility in managing their contracts, which includes more rigorous review processes, comprehensive terms and conditions, and transparent dialogue with business partners. The company has also enhanced its legal skills to effectively deal with complex problems of international trade law and facilitate swift dispute settlements.

4.3. Allegations of intellectual property infringements

Another legally conflicting area for Baosteel to protect is the IP dispute. In 2016, Baosteel was charged by the US Steel Corporation for obtaining trade secrets which resulted in a USITC inquiry. Baosteel claims to have countered that it was the victim of a “rootless speculation and subjective assumption.” The probe, in which other prominent Chinese steelmakers participated, was closed for lack of proof and cited U.S. Steel’s abandonment of the trade secret theft in March 2017. Nevertheless, the claims being made are reputationally harmful for Baosteel regardless of the outcome and could be incredibly expensive for the company. Baosteel also risked international infringement of proprietary IP laws by assuming the self-control of the powered technologies to the proprietary technology. Plus, the company focuses on new technology development in-house to improve self-sufficiency and avoid IP infringements.

5. Conclusion

Baosteel Group's development has been a key part of China’s transformation, going through a growth cycle, restructuring, and internationalized expansion. As one of the major players in the global steel market, the company was confronted with numerous challenges, ranging from technology and finance to law. Environmental concerns and the ever-changing market conditions put severe competition on the global steel industry, but Baosteel’s innovation and adaptability sustained its competitiveness. The paper examined Baosteel's strategic initiatives, financial risks, legal unknowns, and other elements of China’s global industrial policies and market interaction.

The study focused on Baosteel's projects, investments, technologies, supply chain, and financial risks. Areas of interest were the use of automation in the company, carbon emissions policy, and international business activities. Moreover, several financial and legal risks such as exchange rate differences, market risk, liquidity risk, and trade disputes had to be examined. The main conclusion of this paper is that Baosteel was able to sustain growth by exploiting innovation, making strategic investments, and managing legal risk, but a constant challenge means continuous changes must be made.

From the analysis, a few policy suggestions arise. For investors, the risks can be limited through diversification and active tracking of Baosteel’s performance and other movements in global markets. Corporate leaders can ensure sustainability in the long run by focusing on research and development for green supply chain technology as well as strengthening legal compliance. Trade policies for the steel industry should continue to be pro-competitive and pro-trade. In an ever-changing global economy, Baosteel’s finances, regulations, and compliance can help improve innovation and growth.