Xibei Bearing Co. Ltd. (Yinchuan, Ningxia, China; Shenzhen exchange: 000595; 5251R9N7) continues to falter as it has for several years, now expecting to lose at least 30 million Yuan (USD $4.4 million) this quarter, on sales of approximately 60 million Yuan ($9 million).

A year ago, the company lost 9 million Yuan ($1.3 million) in first quarter. Sales for all of 2009 were in the neighborhood of 250 million Yuan ($37 million).

For the past several years, Xibei has blamed a variety of factors for its poor performance. During this recent manufacturing recession, however, the company's problems were magnified as both production volume and sales mix went against it.

Orders from domestic customers declined in 2009 even more sharply than usual. Magnifying the problem, customers began shifting orders to low-margin standard bearings and abandoning higher-margin specialty industrial bearings. As with virtually all manufacturing, small orders for price-competitive bearings usually translates to unacceptably low absorption, higher per-unit manufacturing costs, and accelerating losses.

Beyond the declining orders for standard size bearings, Xibei also said customers essentially stopped ordering its more profitable line of specialty large bore bearings -- for the oil and gas industry, rail, rolling mills, and other heavy equipment. Xibei expects sales into those markets to recover somewhat in 2010.

Founded in 1965 and situated in Yinchuan, the capital of the Ningxia Hui Autonomous Region, Xibei Bearing Group (XBG) is a major state-run Chinese manufacturing conglomerate, all in one location. The six plants making up XBG cover 101 hectares and together employ over 9,000 people.

Xibei Bearing Co. Ltd., (abbreviated NXZ) with 5,000 employees is the largest subsidiary of XBG, and was the first publicly-traded bearing manufacturing company in China. Xibei Bearing is ISO certified, capable of producing 3,000 different ball and roller bearings.

Capacity is for sizes ranging from 40mm to 2,250mm OD. Xibei branded products carry the NXZ trademark and are sold in more than 50 countries worldwide. Primary markets are in China, Eastern Europe, and Russia.

Sales and profits have been on a long decline. Back in 2000, Xibei actual sales were 474 million Yuan ($70 million), even then down 3% from 1999 as other manufacturers accelerated sales and profits.

In 2002, the China Securities Regulatory Commission (CSRC) found serious problems at Xibei. During a routine audit, the CSRC discovered 332 million Yuan ($49 million) had been systematically "misappropriated" by Xibei shareholders. The CSRC also found that parent XBG had improperly guaranteed loans of 275 million Yuan ($41 million) -- at least 110 million ($16 million) of that to Xibei Bearings.

In January 2004, FAG (Germany), reportedly frustrated by continuing losses, problems, and management issues, bought out Xibei's share of a joint venture company the two formed in 2001 (Ningxia Railway Bearing) to manufacture rail bearings. For its part, Xibei now claims FAG (now owned by Schaeffler Group) never followed through on promises to contribute expertise and update Xibei's rail bearing manufacturing equipment.

2001 article: FAG and Xibei form rail bearing joint venture
2004 article: FAG buys out rail bearing joint venture in China
In 2006, Xibei formed a joint venture with CSC Bearing Co. Ltd. and Peng Aikun to manufacture bearings for the oilfield and energy exploration market in China. The joint venture plant is in the Ningxia Hui Autonomous Region.

2006 article: Xibei and CSC for oilfield bearing joint venture
In 2007, the People's Court in Ningxia Hui Autonomous Region ordered Xibei Bearing to surrender 28.6 million shares in the holding company to China Great Wall Asset Management, one of China's state-run investment / bailout funds. In return, China Great Wall accumulated and then wrote off 38% of the company's accumulated losses. China Great Wall now owns 38% of the parent Xibei Bearing Stock Co.

Today, despite government loan forgiveness, parent company bailouts and other interventions, Xibei's accumulated deficit is once again up above 120 million Yuan ($18 million), and Xibei Bearing owns less than 1% of the shares in its own holding company.