The Hindu : Business : China bars foreign control of steel cos.

Online edition of India's National Newspaper
Thursday, Jul 21, 2005

Business

Business

China bars foreign control of steel cos.

Imposes curbs on export of mineral raw materials

BEIJING: China on Wednesday unveiled its first blueprint for the iron and steel industry in which foreign steel giants have been barred from acquiring majority share in domestic steel companies and the threshold of entry for global entities into the booming market has been raised.

Foreign investors have not yet been allowed to take the lion's share in China's steel and iron companies, the new policy released by the National Development and Reform Commission, said. The document is China's first state policy on the iron and steel sectors, Xinhua news agency said, noting that it has raised the industrial threshold for foreign investors into China's steel and iron industry.

According to the new policy, foreign steel companies must have "full intellectual property rights on iron and steel technologies'' if they want to invest in China.

Their output of common steel in the previous year must reach at least ten million tonnes, or that of high-alloy steel must reach one million tonnes. If the foreign investor is not in the iron and steel business, it must prove strong financial capability and high credibility with documents from banks and accounting firms, the policy said.

Interestingly, the new policy has been issued five days after the Chinese Government approved global giant Mittal Steel Co.'s plan to acquire a nearly 37 per cent stake in state-owned Valin Iron and Steel Co. Ltd for $338 million.

The deal had allowed Mittal to become the second largest stockholder of Valin Iron and Steel Company, one of the largest steelmakers in China. PTI

The new policies, published in the Economic Daily, will significantly reduce production by small steelmakers so that the ten largest can boost combined output to over 50 per cent of the country's total by 2010, and over 70 per cent by 2020.

As the world's largest producer of crude steel, the Chinese government has spent billions of dollars on upgrading steelmakers such as Baosteel, currently the world's sixth largest. It is now keen to improve the quality of the steel it makes.

The Government will be stricter in approving new mills but will support mergers between large steelmakers, expecting to form two large companies by 2010 with annual output of 30 million tonnes each.

The new policy will see China limit exports of some raw materials such as coke, iron alloy and pig iron for steel, the report said.

Policy on alumina trade

China also announced scrapping of preferential tax policy on alumina imports and aluminium exports from Wednesday as part of the Government's efforts to conserve energy. Before the policy change, most aluminium producers in China enjoyed a full rebate of the 17 per cent value-added tax on aluminium exports and of the eight per cent tax on alumina imports.

After the preferential policy removal, aluminium producers in China will be forced to cut exports and sell products in the domestic market, China Daily quoted experts as saying.

It will in the long run exacerbate the oversupply in the market and may lead to price reductions of aluminium products, they said.

An industry analyst with the Shanghai-based China Securities, Zhou Ming, said the tax policy change was expected by industry insiders to take effect as early as in May, but sluggish business for the country's aluminium producers had pressured the government to delay the policy release until Wednesday. — PTI, AFP

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