Zhao Xizi, honorary president of the National Small and Medium Metallurgical Enterprise Chamber of Commerce, said at a steel industry forum held recently in Tangshan that the banking sector has begun withdrawing at least 140 billion yuan in loans from the steel industry this year, while also raising interest rates. Reporters learned from some steel mills in Tangshan that many steel mills persist in production because "once production stops, the bank comes running to demand loan repayment."
　　News of steel enterprises falling into difficulty due to bank loan withdrawals has occurred frequently recently. In March this year, Haixin Steel fell into crisis after banks withdrew several billion yuan in loans, and there were rumors of bankruptcy liquidation. Recently, a large steel enterprise in Daqiuzhuang, Tianjin, halted production due to losses and bank loan withdrawal, and the local government stepped in to communicate with the banking regulatory and financial systems to coordinate a solution to the funding problem.
　　In fact, bank loan withdrawal is a common phenomenon across the national steel industry. Zhao Xizi, honorary president of the National Small and Medium Metallurgical Enterprise Chamber of Commerce, said that steel enterprises currently carry about 3 trillion yuan in debt, half of which is bank loans, and banks have withdrawn 10% since the beginning of this year, meaning at least 140 billion yuan has been withdrawn.
　　Zhao Xizi's statement that "banks have withdrawn 10% of loans" was corroborated by industry insiders. Liu Ensan, general manager of Anhui Xianshou Materials Co., Ltd., said, "It is also relatively difficult to renew loans with banks we are familiar with; they will delay processing, and even if they renew, they will reduce the amount by 10%. Banks we are not familiar with will not lend to you at all."
　　While banks are withdrawing loans, loan interest rates are also rising. The preferential policy under which state-owned enterprises enjoyed a discount of several points below the benchmark interest rate has been canceled and replaced by an increase of several points, while loan interest rates for private enterprises continue to rise, causing steel enterprises' financial expenses to increase by 22% in the first quarter. Zhao Xizi said: "Loan withdrawal and higher interest rates have caused the capital chains of some enterprises to break, and those that have not broken are also at risk of breaking."
　　In Zhao Xizi's view, banks are withdrawing loans not because they lack money, but because of higher-level policy. The average debt ratio of steel enterprises has reached as high as 70%, accounts receivable and inventory are continuously rising, and book profits mainly rely on reducing depreciation and selling assets. Under such circumstances, bank loans are the enterprises' lifeline; once banks withdraw loans, the enterprises will surely die.
　　Reporters recently visited several steel mills in Fengrun District, Tangshan. At the gate of one steel mill, a guard eating instant noodles said the factory had been shut down for a month; when operating, it could produce more than 1,000 tons of rebar per day. The reason for the shutdown was lack of profit, and the enterprise could no longer hold on.
　　Another slightly larger steel mill nearby is still producing. According to its office director, the steel mill is also barely holding on, partly to maintain old customers and partly because once it stops, the bank will come to demand debt repayment. "So steel mills secretly stop for a few days and then resume production," he said.
　　Zhao Xizi disclosed that relevant departments are currently conducting compliance registration of steel enterprises and re-examining non-compliant projects. It is stipulated that production capacity below 10 million tons in 2010 will not be granted compliance registration, which alone involves 60 million tons of capacity. Non-compliant capacity built after 2005 must be re-examined, and those that fail the review must be shut down, involving 200 million tons of capacity. "The reporting and review of non-compliant capacity is underway, and the third batch of compliance registrations is also under review. It is estimated that the vast majority will pass, while a small number of enterprises will not." In the second half of this year, enterprises not granted compliance registration will face differentiated water and electricity prices and will not be granted loans. Most of these enterprises are private, and they face the danger of closure. Zhao Xizi hopes that eliminating outdated capacity will not resort to "suppressing the small to protect the large" or "advancing the state sector while retreating the private sector."
　　The office director of the aforementioned steel mill said that under current market conditions, there is no need for the government to control capacity, as enterprises will close down on their own.
　　In 2012, banks controlled steel trade risks, and the steel trade crisis has not yet been fully digested. Last month, the China Banking Regulatory Commission again asked banks to investigate iron ore financing. All signs indicate that the banking sector does not want to be dragged down by the steel industry mired in losses.