Shougang Group, one of China's leading steel mills, will give up its eight-inch chip project to pool money into a steel-making technology renovation.

According to an announcement released by the group, among Shougang's 1.8 billion yuan (US$216 million) proceeding raised in the A-share market in September 1999, 250 million yuan (US$30.12 million) was left by the end of September, which had been allocated for an eight-inch chip project.

"We decided to turn the 250 million yuan (US$30.12 million) into a steel technology upgrading project, which is expected to be a high-profit and short-business-cycle," said the group's spokesman.

In line with the design scheme of the new project, the fixed assets investment of the technology upgrading project will be 607.74 million yuan (US$73.22 million).

After completion, its annual sales revenue will reach 2.76 billion yuan (US$332.5 million), with the net profit at 140 million yuan (US$16.87 million).

Experts and insiders pointed out the decision implied the steel conglomerate will turn its development focus back to the key business - steel-making - and adjust its development strategy proposed in 1999 to extend its reach to the high-tech sector.

Approved by the State Council in November 2001, Shougang Group started preparing for an eight-inch chip project, which has been listed as a key project of North China.

US-based AOS was Shougang's partner in the project, however, due to various reasons, the two sides could not reach an agreement.

So far, if the project is launched, the actual cost will far surpass the budget, which made Shougang shift its investment direction.

Actually, the State-owned group's effort to make a profit in the high-tech industry failed a few years ago.

In 2000, Shougang planned to co-operate with a foreign partner to set up Huaxia Semiconductor Plant, with a combined investment of US$1.3 billion.

The planned semiconductor plant was expected to realize an annual profit of over 900 million yuan (US$108.43 million).

But, when the foreign partner withdrew its investment, the plant fell through.

Xu Jun, an analyst of Huaxia Securities, said it was wise for Shougang to turn back its concentration on its steel-making business.

"Due to the enthusiasm in the high-tech industries in 1999, a large part of the funds raised on the market by Shougang Group were for high-tech projects," said Xu.

Shougang's report showed among the total fund, 968 million yuan (US$116.63 million) was pooled into steel-making technology upgrading and renovation, which brought a 370 million yuan (US$44.58 million) profit margin to the group.

The capital of 550 million yuan (US$66.26 million) invested in high-tech projects only made a return of 41.73 million yuan (US$5.03 million).

"As a giant steel maker, Shougang should make full use of its advantages and concentrate its strength and capital on the key business, in a bid to keep its dominating position in the steel-making industry," said Xu.

(China Daily October 28, 2004)