• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Economic Review: China to Regroup Iron and Steel Producers to Sharpen Competitiveness (2)

Posted on: Wednesday, 10 August 2005, 09:02 CDT

Economic Review: China to regroup iron and steel producers to sharpen competitiveness (2)

Only if China's iron and steel producers grow bigger and stronger via merger and acquisitions, can they avoid being taken over by foreign firms, Yang said.

In line with a blueprint drawn by Luo Bingsheng, the merger and acquisitions will be undertaken based on the geographical locations of the producers.

After a new round of merger and acquisitions, Yang said, China is expected to have five iron and steel "aircraft carriers". They are Liaoning-based Anshan Iron and Steel Group (Angang) in northeast China, Hubei-based Wuhan Iron and Steel Group, (Wugang), in central China, Shanghai-based Baosteel, China's largest steel maker in east China, Hebei-based Shougang Corporation in north China, and Sichuan- based Panzhihua Iron and Steel Group in southwest China.

It was reported that the regrouping of Angang, and the Benxi Iron and Steel Company, also in Liaoning, has already started. But there is no official confirmation. The two companies' combined proven reserves of iron ore resources make up one-fourth of China's total, Beijing-based China Securities Journal said. The merger of the two would be a win-win deal, said the report. However, the move also faces great obstacles, such as how to deal with the 160,000 employees of the two companies and how to turn over taxes to the state, as Angang is owned by the central government, while Benxi is run by the Liaoning provincial government. Meanwhile Shougang, currently based in Beijing and moving to Hebei, is considering regrouping with Hebei's Tangshan Iron and Steel Company. Wugang has reportedly signed a letter of intent to regroup with the Guangxi- based Liuzhou Iron and Steel Company in south China. During China's 11th five-year plan period (2006-2010), Wugang's steel output is expected to exceed 26 million tons. However, Chen Wenling, director of the Comprehensive Planning Department of the State Council's Research Office, said that local governments lack the initiative to conduct the merger and acquisitions, because the iron and steel industry is a big profit-earner for them.

An iron and steel firm with an output of one million tons each year could achieve hundreds of millions of yuan in profits. So local governments don't want their big money-makers to be purchased by and regrouped with firms from other parts of the country, Chen said. Some economists maintain that it's not a good time for the industry to undertake mergers and acquisitions. It's too expensive at present, they say, adding that only when the production far surpasses the demand and the industry is in a recession, can the acquisition cost be reduced. Cao Yushu, deputy secretary general of the Iron and Steel Association, believed that there is still a long way to go for China to become a strong iron and steel manufacturer in the world.

Source: Xinhua News Agency - CEIS

More News in this Category