Source: China Daily

07-20-2007 16:08

The iron and steel (I&S) industry has been viewed as China's economic lifeline since the planned economy era. For 50 years, China has mass produced I&S, so much so that it became the world's biggest steel producer in 1996.

But a new era has begun in the I&S industry, where more is less, and less is more.

Simply put, if the I&S industry improves technology, it will consume less material and emit less pollution. And if it manages to reduce waste, it will increase its global competitiveness.

That was the decision made at a meeting of the State Council, the Chinese Cabinet, in late April, where officials set the target of eliminating 30 million tons of iron and 35 million tons of steel this year of what they called "backward" production capacity.

The "backward" capacity is to be phased out through mergers and acquisitions (M&A).

The ultimate objective is to eliminate 100 million tons of iron and 55 million tons of steel from annual production capacity before 2010, according to the central government decision.

This is the first time the central government has met to specifically discuss I&S production capacity. According to industry experts, the decision is a green light for the Chinese I&S companies, most of which are already listed, to raise new money on capital markets by flagging their M&A plans for the next year and a half.

Government support, as decided at the State Council, will focus on the few largest I&S corporations, in hopes of bringing their number from 10 to five or six.