SteelOrbis Shanghai
The wave of mergers and acquisitions (
M&A) among the steel industry giants was perhaps the defining feature of the global steel industry in 2006.
China's important status in the world steel market has also meant that
China's steelmakers have become hot targets for the big overseas steel corporations. However, due to
China's strong restrictive policies on
M&A from abroad, so far foreign steel corporations and investors with purchasing intentions have not made any great progress.
It's a real problem that while there are a large number of steel mills in
China, there has so far been a lack of any super steelmaker in
China. It's hard to imagine how the domestic steelmakers can compete with the world's steel giants if they are allowed to enter
China and control some of the local producers. The state also fears that control of the national steel industry could be claimed by the foreign steel giants. Nevertheless, the presence of foreign steelmakers in
China would also bring with it new technologies, high value added products and advanced management experience. These would all be positive factors promoting the development of the domestic steel industry.
As a result, although the Chinese government still prohibits foreign steel companies from establishing wholly-owned subsidiaries in
China, and also restricts their control of domestic steelmakers, especially of the big ones, it seems likely that the current strict policy will see gradual change in the future.
Firstly, on August 8th, six Chinese government ministries issued new regulations regarding
M&A moves by foreign investors targeting domestic companies. Although more details of the regulation are still in the drafting stage, the published document told the world that
China would now allow foreign investors to merge with Chinese companies by purchasing the shares of the targeted companies in the local capital market. However, as a precautionary measure, the new regulation also stipulates that if any
M&A case involves full control of a targeted company in a key national industry, or in an area affecting the security of the national economy, then the case should be submitted to
China's Commerce Ministry for approval. Even so, the new regulation is still a positive signal which means that
China is gradually opening up its capital market to the world.
Secondly, the Chinese authorities have announced that they will restructure the state's assets by means of supporting semi-state enterprises and selling shares in other business concerns, i.e., the state will invest more in important industries and no longer aim at controlling other less significant industries. The industries which will receive greater state backing include the energy, military, infrastructural, space, air transport and maritime transport industries. However, the steel industry is not on the list. This absence allows market observers greater room for the imagination when attempting to forecast the future of
China's steel industry.
It is believed that the key reasons for the unsuccessful
M&A attempts among
China's steelmakers will continue to exist for a long time into the future. That is to say, the conflicts of interest involving all levels of governments and state-owned companies cannot be resolved in the short term. Under such circumstances,
China's local governments and some of the steelmakers will probably prefer to use the new policies to their own advantage, before then agreeing to sell the mills to foreign investors or to commence cooperation with them. Summing up, we may say that foreign investors can soon expect to see the dawn of a promising future.