SteelOrbis Shanghai
In
China, merging is difficult for two steel mills who are located in different provinces and who are under different asset management committees. The problem results from
China's current state-owned enterprises management system. However, there is now an indication that the situation will probably change, with a merger between
Baosteel and Masteel - two of
China's biggest steelmakers - coming onto the agenda.
In January 2006,
Baosteel and Masteel signed a strategical cooperation agreement in Maanshan city where Masteel is located. It seemed like these two big steel mills were taking steps towards a merger. However, this was really just an ostensibly polite agreement but without any actual significant content. At that time, Masteel was not willing to merge with
Baosteel. This was evident when Masteel's president was absent from the signing ceremony - the company being instead represented only at vice presidential level.
The contrast was stark when, eight months later in Sep. 2006,
Baosteel President Ms. Xieqihau, accompanied by top company managers, arrived at Maanshan again and were this time greeted with an ovation from local government officials and all top managers at Masteel, including Masteel's president Mr. Gujianguo. The top officials from the two steelmakers went on to hold in-depth discussions regarding a bilateral communications system, bilateral purchasing,
distribution, logistics, R&D, etc. The purpose of the
Baosteel visiting team is the same as eight months ago. However, the stance of Masteel on the issue of a merger of the two mills has changed decisively.
From this example, we can construe some new developments as regards mergers in the Chinese steel industry. Generally speaking, some of the main barriers blocking the mergers of steelmakers are being removed and the process of steel industry mergers is being accelerated.
Looking at the
Baosteel-Masteel case, we see that central government has started to intervene effectively in the merger and restructuring processes between different steelmakers.
Baosteel is an enterprise under direct central government control while Masteel is just a local mill owned by local government. Without central government intervention, both local government officials and Masteels' top management staff would certainly oppose a
Baosteel-Masteel in order to protect their own interests.
In the case in question, we can also see that the central government is showing its strong will to promote mergers between steelmakers located in different provinces. This is a clear signal to local officials and steelmakers that if they don't expand in time they will probably be forced into mergers in the near future.
Due to the strong intent of the central government, many smaller steel mills may no longer be protected by local government against external merger pressures. A new wave of mergers between steelmakers in
China probably lies just around the corner.