According to
China's Development Policies on Iron & Steel Industry - published in July 2005, government has made decisions to hasten consolidations among steel mills to centralize steel
production. It is planned that top 10 steelmakers will occupy 50% shares of yearly output in
China in 2010. Recently, central government's macroeconomic management agency, the National Development and Reform Commission (NDRC) issued a notice to stress the above aspects again and announced to hasten steps to develop 2 or 3 big steel corporations with yearly yield 30 million tons and some with 10 million tons, all of which are of international competitive power.
A good will does not always lead to a good end. Central government's plans are good intentioned, however there are many barriers on the way. The strongest resistance to combinations just comes from the all-level local governments rather than others due to the following reasons:
• Local tax incomes tend to drop.
Chinese steel mills contribute greatly to local tax incomes which belong to local governments. If a local mill is bought by a mill registered in other places within
China and becomes one part of latter, most taxes can't be imposed by local government any longer. This loss may mean huge to local governments, especially to those in the middle and western areas of
China.
• Achievements in post tend to decrease.
In
China, government officials' promotion is mainly decided by their achievements in post. Like local GDP index, quantity and scale of local enterprises are also important parts of their achievements. A steel mill certainly is a non-small economy to any local government in
China. A mill's sale means a loss to personal achievements, so no official agrees to give up mills. When
Baosteel began to purchase Jinan Steel, it faced such situations. During purchasing negotiations, Shandong government took steps to interrupt this transaction by releasing messages to the public that they're planning to combine two local mills-Jinan Steel and Laiyang Steel, to a super steel giant with yearly output 30 million tons.
• Complicated and endless process for approvals delays the consolidations.
Completion of combination needs official approvals from many government departments. Applying for such approvals is a painful process in
China, because too many interest conflicts among departments and working inefficiency probably will be involved. A typical example is famous combination of
Angang and Bengang. Due to lots of above mentioned unclear factors, the two steelmakers have announced to merge for a year, but real consolidation is still not completed so far. In another case, due to above factors, though a new consolidation project in Zhejiang province was approved by central government 4 years ago, it has not been able to kick off till now.
It is not difficult to find out that the key reason for local governments' negative attitudes towards consolidations is interests. Their interests will diminish if steel mills consolidate. Without good solutions to such problems, it does not seem possible for local governments to change their minds.