China Studies Lifting Ban on Foreign Control of Steelmakers

May 22, 2014 1:42 am ET

May 22 (Bloomberg) -- China’s government is in discussions to lift its ban on foreign companies taking control of domestic steelmakers, according to Li Xinchuang, deputy secretary general of the China Iron and Steel Association.

“The government is in talks with the steel industry. It may take time as there are different voices,” Li said yesterday in an interview in Beijing. “I am an advocate of a change in this policy because China needs advanced technologies and management in this perfectly competitive market.”

The discussion over the ban, which has been in place since 2005, underscores China’s urgent need to address crippling overcapacity in the industry via better technology and higher- value products. Companies in the world’s biggest producer and user of steel are facing the harshest operating environment ever because of a credit squeeze and market glut, He Wenbo, chairman of Baoshan Iron & Steel Co., the nation’s top publicly traded steelmaker, said last month.

China’s big mills had a combined loss of 2.3 billion yuan ($369 million) in the first quarter, according to CISA, an industry group funded by China’s major steelmakers, as the nation’s economy expanded at its slowest pace in six quarters.

“A deregulation in investment restrictions will attract foreign companies because China is such an important market,” said Xu Xiangchun, chief analyst with Mysteel.com, China’s biggest industry researcher. “Still, the policy shift isn’t an easy decision since it needs approval from various government agencies.”

Broad Thrust

Targets for foreign investment are more likely to be non- state companies, or the smaller state-owned firms, Xu said.

The specific discussion over steel would be in line with the broad thrust of China’s industrial policy. The government has said it would relax barriers-to-entry for foreign investment in those industries -- also including aluminum, cement, glass- making and shipbuilding -- suffering from overcapacity, according to the official Xinhua News Agency in March.

The Xinhua report cited Su Bo, vice minister of Ministry of Industry and Information Technology, who also said the government would support plans by those industries to set up plants overseas.

“If you don’t allow foreign companies to come in, they won’t allow you to get out,” said CISA’s Li.

Three calls to the Ministry of Information and Industry Technology’s office weren’t answered today.

The ban on foreign control was tested in 2008 when Luxembourg-based ArcelorMittal, the world’s largest steelmaker, shelved a plan to take majority control of China Oriental Group Co. after failing to win approval. ArcelorMittal remains China Oriental’s second-biggest holder, according to data compiled by Bloomberg. It also has a stake in Hunan Valin Steel Co.