Chinese Herald News Nikkei Asia reported on July 23 that Japan's Nippon Steel Corp. will withdraw from its joint venture with Baoshan Iron and Steel Co., marking a turning point in a decades-long partnership that was once a symbol of the modernization of China's steel industry.
According to Kyodo News, after the signing of the Japan-China Treaty of Peace and Friendship in 1978, Nippon Steel contributed to the modernization of China's steel industry by providing technology as a symbol of economic cooperation. At that time, Nippon Steel accepted the invitation of the Chinese government to support the construction of the Baoshan Iron and Steel Plant in Shanghai.
Nippon Steel will withdraw from its joint venture in China
Founded in 2004, Nippon Steel Corporation (BNA) is a 50/50 joint venture between Nippon Steel and Baoshan Iron & Steel Co., Ltd. (Baosteel), a subsidiary of the China Baowu Iron & Steel Group.
Japan automakers, Nippon Steel's main customers, are struggling in China due to the rise of local EV manufacturers. Nippon Steel sees it difficult to expand its business in China and will concentrate its investment resources on United States and India.
Nippon Steel announced on March 23 that it has decided to terminate the contract after the expiration of the 20-year contract at the end of August. The company said it plans to sell all of its BNA shares to Baosteel for 1.758 billion yuan ($241 million), subject to regulatory approvals. The move resulted in a 70% reduction in Nippon Steel's steel production capacity in China.
According to Nikkei, BNA's annual steel production capacity is 2.62 million tons, accounting for about 70% of Nippon Steel's steel production capacity in China (3.6 million tons). Nippon Steel's production capacity in China will remain at around 1 million tons per year after exiting the BNA, including a joint venture with Wuhan Iron and Steel Group, a subsidiary of China's Baowu Iron and Steel Group, which produces tinplate for canned food and other products.
The shift to electric vehicles in China is gaining momentum, rapidly expanding the market share of local automakers. From January to June this year, Japan's three major automakers — Toyota, Nissan and Honda — sold 1.54 million vehicles in China, down 13 percent from the same period last year and the third consecutive year of decline.
Nippon Steel sees it difficult to expand its business in China due to the lack of competitiveness of Japanese car brands, the continuous reduction of production, and the development of automotive steel sheet production technology by local steel companies. Nippon Steel plans to concentrate investment resources on United States and India.
Honda shut down its joint venture plant in China and reduced production on a large scale
A few days ago, Honda Motor Company announced that it will close one plant in China while suspending vehicle production at another plant in the face of fierce competition in China's electric vehicle market. In the following time, we will accelerate the adjustment of China's production layout to better meet market demand and accelerate the production of electric vehicles.
Specifically, Honda will close a plant that is a joint venture with the GAC Group, which is expected to close in October. The plant has been in operation for nearly two decades and has an annual production capacity of 50,000 vehicles, mainly for the Accord, a mid-size car. In November, Honda will suspend a plant in its joint venture with Dongfeng, which has an annual production capacity of 240,000 vehicles. This will reduce Honda's production capacity in China from nearly 1.5 million to 1.2 million units, the largest reduction by a Japan car company in China.
A Honda spokesperson said the adjustments are part of Honda's response to changes in the Chinese market. With the rapid development of China's auto market, especially the new energy vehicle market, Honda is facing strong competitive pressure from China's own brands. Thanks to the widely adopted pure electric or plug-in hybrid power form and cost-effective internal configuration, independent brands have won the favor of a large number of consumers in the domestic market.
In the face of the shock, Honda and Nissan, which is also reducing production capacity in China, announced in March that they were considering a strategic partnership to jointly develop artificial intelligence technology for electric vehicle components and automotive software platforms.
In addition, Honda plans to compensate for this reduction by producing electric models through two new electric vehicle plants under construction through joint ventures with GAC and Dongfeng, respectively. Honda aims to start production at two new plants this year and expects to restore production capacity to 1.44 million units. The company emphasized that China, the world's largest market, remains an important market for Japan automakers such as Honda.
However, as new energy vehicles have become the mainstream in the domestic market after the epidemic, the sales of Japanese cars, which are obsessed with traditional hybrid vehicles and hydrogen energy in the technical route and lack of progress in intelligent and other fields, have been declining.
According to sales data, Honda's terminal car sales in the Chinese market in June this year were less than 70,000 units, a year-on-year decrease of nearly 40%, and a decline for five consecutive months. From January to June this year, Honda's cumulative sales data was 415,900 units, a year-on-year decrease of nearly 21.5%.
Honda has a global production capacity of nearly 5 million vehicles, and China is its largest production base. Guangqi Honda Automobile announced in May that it was promoting the rationalization of excess production capacity, including the voluntary resignation of regular employees. While downsizing its gasoline vehicle business, the company aims to rebuild itself by strengthening its EV business.
The decline in sales of Japan automakers in China has triggered a chain reaction
Japan Steel Corporation (Nippon Steel) has decided to withdraw from its joint venture with China's Baosteel Nippon Steel Automotive Steel Co., Ltd. (BNA) after its 20-year contract expires this summer. The company plans to sell all of its holdings to Baosteel.
For the past 20 years, BNA has been responsible for processing steel plates imported from Japan for supply to Japan automakers' Chinese plants. Both sides benefited: Nippon Steel seized on the growing demand for automotive steel sheets and expanded its operations in China, while Baosteel improved its steel production technology.
However, Nippon Steel's main customers, Japan automakers such as Toyota, Nissan and Honda, are struggling to compete with the rise of local Chinese EV makers. According to data provided by the China Passenger Car Association, in May this year, the market share of Japanese cars in China fell to less than 15%, while the market share of domestic brands was 57.5%. In the first half of this year, among the top 5 models in terminal sales, only one pure fuel model, Sylphy, was on the list, ranking 5th. The top four Qin PLUS, Model Y, Song PLUS and Seagull are all pure electric/plug-in hybrid models.
Against this backdrop, Nippon Steel believes that it will be difficult to expand its business in China and plans to concentrate its investment resources on United States and India.
In December, Nippon Steel announced that it would buy United States steel giant United States Steel for more than $14 billion, but the deal has not yet passed the United States government's national security review and faces strong union opposition, and it is still unclear whether the deal will be successfully completed.
Nikkei Asia believes that Nippon Steel's withdrawal from joint ventures with Chinese companies may have an indirect impact on uncompleted acquisitions due to United States lawmakers who have speculated that Nippon Steel has a close relationship with China's steel industry. In March this year, in an attempt to persuade the United States, Gan Liming, a member of the House of Representatives of Japan's ruling Liberal Democratic Party and former Minister of Economy, Trade and Industry, said in an interview that the acquisition would strengthen the economic security relationship between the United States and Japan and "help counter China's dominance in steel manufacturing."
Bloomberg reported on the 20th that in order to win United States Steel, Nippon Steel recently hired former United States Secretary of State Pompeo as an adviser to assist in its acquisition of United States Steel.