Sinosteel Corporation (Sinosteel) is one of the 153 central enterprises under the administration of the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC). It has 76 subsidiaries of which 53 are in China and 23 abroad. In 2005 Sinosteel gained approval from the SASAC to engage in the development and processing of metallurgical mineral resources, trading and logistics of metallurgical raw materials and products, and related engineering technical services and equipment manufacturing.

Mr Liu Andong is a senior accountant and works as the Chief Accountant for Sinosteel Corporation. Before joining Sinosteel in 1993 he worked for the Business and Communication Department of the Ministry of Finance from 1985, as a staff member and principal staff member successively.

Mr Liu has taken various roles throughout his career in Sinosteel, including manager of the General Office, Accounting and Finance Department; deputy-director and general manager of the Accounting and Finance Department; director of Sinosteel International, Ltd.; supervisor of Sinosteel Assets Administration Co. Ltd.; director of Sinosteel Scie-tech Development Company; director of Sinosteel Channar Pty Ltd.; convener of the board of supervisors of Beijing Custeel E-business Co. Ltd.; director of Sinosteel International Holding Co. Ltd.; team leader of Sinosteel’s Public Listing Business; Chairman of Provident Faith Investment Ltd.; and Chairman of Sinosteel Shandong Mining Co. Ltd.

Mr. Liu got his Bachelor degree from Zhongnan University of Economics and Law in 1985 and a Master degree of Business Administration from Renmin University of China in 2000.

Can you give me a general introduction to Sinosteel and its operations?

Sinosteel is a large multinational enterprise group whose businesses integrate the development of resources, trade and logistics, engineering technology, equipment manufacturing and specialised services. Sinosteel provides comprehensive, auxiliary and integrated services to the steel industry, especially steel mills. While focusing on its core businesses and actively pursuing a specialised, internationalised, industrialised and IT-focused developing strategy, Sinosteel vigorously establishes an internationally competitive heavy metallurgical machinery manufacturing base. This base integrates heavy machinery research and development, the manufacturing of core products and general and sub-project bidding. The company also has the largest domestic manufacturing and research and development bases in refractory, carbon and ferroalloy with the highest comprehensive strengths.

In order to improve the supporting role of its industrial enterprises, Sinosteel continuously promotes its capabilities at providing comprehensive auxiliary services to the steel industry, especially steel mills.

Sinosteel realised a revenue of RMB 61 billion in 2006 and over RMB 100 billion from its core businesses in 2007.

What is your role at Sinosteel?

I am the Chief Accountant of Sinosteel and attend the Group President’s Work Conference and the Party and Political Leaders’ Meeting (the top decision body of SOEs). My major responsibilities include financial management, risk control, asset management, mergers and acquisitions, capital operation and Sinosteel’s high risk businesses.

Can you give us an introduction to the principles and organisational structure of Sinosteel’s treasury department?

“The core of business management is financial management, and the core of financial management is treasury management” I quote these words from Mr. Huang Tianwen, Sinosteel’s President, in his speech at the group’s Financial Work Conference. In brief, Sinosteel’s financial management principles can be summarised as ‘one comprehensive and three centralisations,’ that is comprehensive budget management together with funds settlement centralisation, bank debt centralisation, and the centralised management of the accounting system.

The group has redefined our organisational structure and clarified the job descriptions, further defining the functions of the offices that have been established. We began to implement this in 2004, after President Huang Tianwen came into office, and completed the basic tasks in 2005.

• The Treasury Management Office is responsible for external financing and the overall planning of internal funds.
• The Funds Settlement Office is responsible for the settlement and monitoring of funds.
• The Accounting Valuation Office is responsible for financial accounting and valuation.
• The Comprehensive Regulations Office is responsible for drawing up financial regulations and managing assets and property rights.
• The Overseas Management Office is responsible for the financial management of overseas subsidiaries.
• The Risk Control Office is responsible for managing market risk, credit risk, liquidity risk and operating risk.

Why do you think it is necessary to implement centralised treasury management at Sinosteel?

There are three reasons:

1. It is in accordance with the ‘going global’ strategy of Chinese state-owned enterprises.At the central enterprise leaders’ meeting on December 25 2005, SASAC director Mr Li Rongrong commented that it would be a priority to reinforce financial control in 2006. He has put special focus on corporate treasury management, emphasising that large enterprise groups should employ centralised treasury management, improve the management of cash flow and capital chain, and exert more rigid control over money flow.
2. It is a prerequisite in Sinosteel’s healthy and fast development.
3. It is necessary for Sinosteel’s two objectives for 2010: first, that Sinosteel Corporation will measure up to the standard of the top 500 companies in the world by 2010; second, that Sinosteel Corporation will grow into an internationally well-known and competitive conglomerate.

What do you think is the aim of treasury management?

The aim is to improve efficiency, lower costs, and to achieve the balance and effective flow of funds.

What approach has Sinosteel taken in implementing centralised treasury management?

1. Generally speaking, large-scale global enterprise groups have three models of centralised treasury management:
   • Reimbursement Centre
   • Settlement Centre/In-house BankIn turn, there are three different models of in-house bank: the highly centralised model, the relatively centralised model and the loosely managed model.
   • Financial Company
2. It is an internationally acceptable practice to promote centralised treasury management with the support of a regional treasury centre (RTC) and via a treasury management system (TMS) or eTreasury.
3. Currently the model adopted by Sinosteel is the settlement centre model. This is a treasury management model which is aimed at settlement. Under this model, accounts are able to reflect capital flow on a more comprehensive basis. At the same time Sinosteel’s treasury management latitude also demands for such a model.
4. The TMS Sinosteel has employed is called the ‘Sinosteel treasury management system’.

How has Sinosteel implemented its treasury management processes? What experience and achievements have you gained? And what is your plan for the future?

First, Sinosteel has gradually developed its unique treasury management system through constant experiments. At the end of the 1990s Sinosteel initially adopted the in-house bank management model. In 2004, along with Oracle’s ERP, Sinosteel also installed the Sinosteel treasury management system developed by iSoftStone, a domestic company, thus establishing a settlement centre model treasury management system for Sinosteel. This system has fully embodied the management concept of combining a “high degree of centralisation and relative de-centralisation.” The aim of this is to be strict without being too inflexible, and to be flexible without creating disorder! Step by step, management is moved upward and operations are moved downward. In other words, centralisation is embodied in “one comprehensive and three centralisations,” and decentralisation is reflected in the fact that branches and subsidiaries enjoy a high degree of autonomy within their scope of power as authorised by the group.

Second, all models of treasury management are based on the management of accounts. Here ‘accounts’ include both the external accounts that an enterprise opens with banks and its internal accounts. Since 2004 we have been applying very strict account management policies to participating units. Pre-approval from the group headquarters is a must in opening external accounts, and a principle of separating revenue from expenditures and opening portal accounts is followed in managing the external accounts opened by participating units.

Last, Sinosteel’s treasury management system has made it possible to share ERP resources internally and integrate seamlessly with five banks (Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, China Merchants Bank, and Bank of Communications) externally, realising the so-called ‘corporate-bank direct linkage’. This has both satisfied the group’s demands for the centralised treasury management of its participating units and provided these units with a secure, fast, and convenient settlement platform.

After the implementation of its treasury management system Sinosteel has achieved the following results within a year:

1. 84 companies have participated in the system with the number of users reaching 326; banking information from 315 branches of 41 banks (including 189 corporate-bank direct linkage accounts) has been recorded; 458 approval flows have been set up, 16 function modules have been launched, and 32 accounting statements have been developed.
2. 1,767 capital plans have been framed and executed, amounting to RMB 305.2 billion; while 32,370 monetary capital applications have been made, the total amount of which is RMB 54.6 billion. Among these, 8,838 applications totalling RMB 13.3 billion have been settled through the direct-linkage approach (the above data is according to statistics made before November 20, 2007).

The Sinosteel treasury management system, which covers all the group’s companies, basically reflects the original design principles of ‘secure, fast, and convenient.’ While keeping high levels of efficiency, the group also takes effective monitoring measures on high value payments, extending risk prevention to each aspect of the business.

The direction of development for Sinosteel’s treasury management is as follows:

1. As a fundamental domestic cash pool has already been set up, the group will employ the complete sweeping of funds and bring the functions of the cash pool into full play when circumstances permit.
2. We are planning to put treasury management into practice in our overseas subsidiaries step by step. We have already identified two relationship banks and have completed the opening of accounts. The corporate-bank direct linkage is also about to be launched.
3. As we continue to grow we are likely to set up our own financial company which will bring about changes to the current treasury management model. But whatever the changes will be, we are resolute in pursuing our aims in treasury management.