Diversification Of Financial Risk Control Problems Of China’s Iron And Steel Enterprises

Iron and steel industry is an important basic industry of our national economy, also it isan intensive industries of technology, capital, resources and energy. China is the world’slargest producer and consumer of steel, but with the financial crisis in2008, the steel industryis facing overcapacity, rising resource prices, declining steel prices, demand slowdown, sothat the sales profit rate has dropped even huge losses, then it becomes "the least profitableindustry" in China. Facing to the reality of meager profit or damage, China’s iron and steelenterprises were forced to vigorously develop non-steel industry, and revisit thediversification strategy. This situation also makes the theoretical circles and the businesscommunity reached a consensus on the diversification strategy development.The consensusmarks a major transformation, which is China’s iron and steel enterprises will take steel as thekey link to the diversification strategy. Therefore, our iron and steel enterprises’diversification wave will occur. However, due to the lag of relevant laws, regulations andother external factors, and internal risk management system construction still being in theexploration stage, China’s iron and steel enterprises must be hidden financial risks in thedevelopment process of diversification. Thus, the closure of many domestic industries causedby the diversification strategy failed, fundamentally, is also due to the lack of diversificationof financial risk control and prevention. Therefore, how to establish a full range of riskmanagement and control mechanisms to prevent the financial crisis, has become a key issuein China’s theoretical circles and enterprises.Therefore, this paper first describes the theory of financial risk diversification of the ironand steel enterprises, including financial risk management theory and the four related theories;secondly it elaborates on the status quo of diversification in China’s iron and steel enterprises,and on the current economic situation, the situation of our country iron and steel enterprisediversification was briefly analyzed; again it analysis of China’s iron and steel enterprises ofdiversified financial risk management problems and points out its causes; and then proposedto construct a COSO-ERM control system based on financial risk, including organizationalstructure, control process, the mechanism of supervision and management compensationmechanism; finally it describes the experience of foreign good analysis and summarizes theexperience. And according to the situation of our country, it puts forward somecountermeasures, suggestions and the system mechanism to prevent financial risks, in order to play a certain guidance of financial risk management for China’s iron and steel enterprises’diversification.