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China Considers Opening Up Its Steel Industry to Foreign Control

China Considers Opening Up Its Steel Industry to Foreign Control

Chinese officials are exploring a proposal to lift a nine-year-old ban on foreign control of its steel companies, according to people in the industry. But investors eager for a slice of the world’s largest steel sector, be warned: Talks on the issue aren’t likely to produce a consensus anytime soon, says one industry official.

“The idea is being explored, but the outcome may not be what people are hoping for,” said Chi Jingdong, deputy secretary-general for the China Iron and Steel Association.

In July 2005, the Chinese government moved to prohibit foreign investors from taking controlling stakes in domestic steel companies. The law effectively blocked Mittal Steel Co., which would a year later become the world’s largest steelmaker, from its plan to acquire a controlling stake in Shenzhen-listed Hunan Valin Iron & Steel Co. that would be equal to the one held by the mid-sized Chinese mill’s parent, Valin Group. Beijing viewed steel as a strategic sector, supplying some of its most crucial industries, and was reluctant to allow outside control – though it still allowed minority stakes under certain conditions.

Since then, proposals to lift the ban – largely coming from Chinese steelmakers hopeful for injections of foreign capital and know-how – have surfaced every few years. This year, the momentum seems to be on the side of those in favor of deregulation. The National Development and Reform Commission said Thursday foreign investors are welcome to participate in infrastructure projects opened to private investment, including railways, gas pipelines, telecommunications and clean energy. These are sectors that in the past were viewed as strategic, and therefore closed to foreign participation.

A Commerce Ministry official in October had also hinted that China’s similarly closed automotive sector could open its door further to a greater foreign role. Recent statements by the China Iron and Steel Association, a state-backed body that represents steelmakers, have also said Chinese mills are “actively pursuing” a policy of “going out” as well as “inviting in,” (in Chinese) meaning outbound acquisitions and inbound investments, saying that these mills would like more cooperation with foreign investors. But officials didn’t elaborate on exactly how far mills would go to “invite” foreign interest.

A sudden about-turn on the policy doesn’t seem likely. Mr. Chi said there’s still a sense of “dilemma” over the proposal. In any case, China’s economic slowdown has taken a toll on the steel-consuming construction sector amid government pressure to cut the steel industry due to environmental pollution – none of which are making Chinese steel firms the most desirable targets for acquisition.

“The opening up of the steel sector – that’s a certainty,” Mr. Chi said. “But how open it’s going to be, that’s still unclear.”


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