The U.S. Steel Corp. signed an agreement here today to build a billion-dollar iron ore processing complex, setting a new record for U.S.-China trade and opening the way for a 25 percent increase in Chinese steel production.
U.S. Steel president, David M. Roderick, reached by telephone at his Tokyo hotel late tonight, said the preliminary agreement signed earlier today will allow work to begin at the north China location called Chi-Ta-Shan on a completely new plant to be finished by 1983.
Roderick, who arrived here Jan. 1, said the normalization of Sino-American diplomatic relations that began that day helped ease final agreement on a contract that has been under discussion for four months. The ore processing project will significantly raise U.S.-China trade statistics for the next few years and give Peking a needed jump on its target of doubling steel production by the year 1985.
The project will be the largest single enterprise the leading American steel manufacturer has ever undertaken abroad, Roderick said. He said that he did not know how many company employes would move to China to supervise the design and construction, but that they would concentrate on providing Chinese with the skills to keep the plant running.
"We will be here through start-up and we will do training of Chinese, in the United States as well as China," he said. "We will have our personnel there as the thing rolls along, until the plant is doing the production level that is satisfactory to the People's Republic."
Roderick left for Tokyo, on his way home to Pittsburgh, after the signing today with officials of the China National Technical Import Corp. The agreement was signed on behalf of U.S. Steel by Frederick A. Dudderar, president of its engineers and consultants subsidiary, which will handle the construction.
Four other U.S. Steel division presidents accompanied Roderick, who said he hoped the company would be doing business with China in many other areas as well. The divisions include oil well supplies, international sales, mining and agricultural chemicals.
Roderick said U.S. Steel had been in competition for the processing plant contract with another American company and a consortium of Australian and Japanese interests. All were asked to present proposals for a factory that would take low-grade iron ore and convert it to higher grade pellets that can be turned into steel.
Chinese officials have said in the past that they might award contracts to European or Japanese rather than American firms if the companies had comparable capabilities and Washington had not yet recognized Peking. Roderick said he thought normalization had helped his team achieve "more open relations, more friendly relations" with the Chinese and also "helped make financing easier."
Equipment for the plant, to be supplied by several subcontractors, will cost about $800 million and labor costs will be more than $200 million, mostly for salaries of Chinese workers. Roderick said the Chinese had not yet indicated how they wanted to finance the project, but the company was ready to assist in arranging American bank credit, which Peking has shown great interest in lately.
The project is the largest of a number of recent deals with American companies that signal an end to years in which Peking tried to follow Chairman Mao Tse-tung's call for self-reliance and avoided many large purchases of foreign technology. The leadership that assumed power after Mao's death in 1976 gradually tore down the self-reliance policy, so that in the last several weeks the Chinese have negotiated such deals as a $50 million chain of hotels by a subsidiary of Pan American Airways and an $800 million copper processing plant by the Fluor Corp.
U.S. Steel apparently impressed Chinese officials with tours of its Minntac processing plant in Minnesota, the largest of its kind in the world, according to Roderick.
The new Chi-Ta-Shan plant will be designed to take 20 million tons of low-grade iron ore each year and turn it into 17 million tons of higher grade pellets. These, in turn will be shipped to China's major iron and steel works at Anshan in Liaoning Province. The increased volume of pellets will allow Anshan, now being expanded, to increase its annual steel output from 7 million to 15 million.
Chinese steel production climbed at a record rate in 1978, from 24 million to 31 million metric tons, but much of that increase represented resumption of production in plants that had been stymied for years by political disruptions. Chairman Hua Kuo-feng has set a goal of 60 million metric tons for 1985, a goal many foreign analysts think will be very difficult to reach.
Japan's Nippon Steel Corp. has won the largest steel contract so far, for a $2.3 billion steel mill outside of Shanghai. Bethlehem Steel Corp. has also signed an agreement with the Chinese to build a processing plant, estimated to cost about $100 million.
Roderick said there was no plan at present for his company to take part of the payment for the plant in the form of ore or other Chinese goods, but he said company officials were looking to buy Chinese products. In a meeting yesterday, Chinese Vice Premier Kang Shein told Roderick, "If we want to do business, it must be on the basis of equality and reciprocity. We buy your things, you buy our things as far as possible."
Analysts here say a major reason for Peking's decision to give in to American demands for guarantees of Taiwan's security in the normalization agreement was a strong desire to improve its access to U.S. technology. Steel production must increase quickly if Peking is to construct a modern industrial base and revitalize its under-equipped armed forces.