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China Considers Steel Investment Barriers

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Industry is booming, but multi-nationals need not apply.

July 14, 2005

Critics of China’s questionable approach to free markets may have new ammunition made of steel.

 

According to a report on the China News Daily Web site, the world’s leading steel producing nation will soon “forbid foreign steel producers from taking controlling stakes in domestic steel companies.” The policy was reportedly announced by Qi Xiangdong, deputy secretary general of the China Iron and Steel Association. More details are expected the week of July 18.

 

Additional restrictions being put in place by the Beijing government will require foreign steel producers to “have independent intellectual property in steelmaking technologies and have an annual output of 10 million tons,” Qi is quoted as telling China News Daily.

 

Chinese leaders reportedly are reacting to multi-national steel companies such as Mittal Steel and Arcelor speeding up their merger and acquisition activity in China.

 

One analyst quoted by China News Daily provided a bluntly nationalistic appraisal of the situation. “The steel sector is one of backbones of China’s steadily-growing economy. Therefore, it should not be controlled by foreigners,” Tian Shuhua from China Galaxy Securities Co Ltd. was quoted as saying.

 

China thus plans to restrict investment in its steel industry by barring foreign companies from taking controlling (51 percent) stakes in existing Chinese firms.

 

The move would probably help the government manage its reported plans to centrally control the merger of many of the fragmented sector’s more than 850 steel producers.

 

Statistics for the first half of 2005 would seem to indicate that there is room in the Chinese market for many competitors.

According to an Agence France-Presse report, China’s steel output rose 32 percent to 165 million metric tons in the first half of 2005, putting it on pace to produce more than 320 million metric tons of steel this year. That is a more than 30 percent increase over last year’s production, which was already the world’s largest by far.

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