September 06, 2008

Chinese state enterprises unlikely to overcome local interest barriers for M&A

China Securities Journal reported that in contrast to more and more converging world steel industry, China's steel sector presents decreasing concentration rate these years including top ten producers' crude steel output taking up 34.66% in 2006 compared with 2001 figure of 46.25%.

Mr Luo Bingsheng deputy director with China Iron & Steel Association noted interest distribution conflicts between the central and local governments has become the keynote obstacle to steel M&A promotion as the industry is mainly formed by state enterprises. Other analysts believe the private capital is possibly to dominate the consolidation campaign in future.

Another official with the industrial economic research institute noted the state owned assets are hard to be moved with much local government interest involved and defects in China’s taxation system also make cross region merger and acquisition difficult.

Mr Li Su director with China Mergers & Acquisitions Association expressed that he is not optimistic toward the present combining activities of state enterprises saying that it's hard to break the locality barriers, while the private capital may play more important role in future matches.

Mr Li made a survey in Hebei and found private steel mills have absolute advantage in cost controlling etc.

(Sourced from MySteel.net)