* 2015 steel consolidation target dropped amid opposition
* China focus shifts to market forces from direct govt
* To cut red tape, ease approvals, financing for mergers
(Recasts, adds quotes from industry minister)
By David Stanway
BEIJING, March 25 China has dropped a
long-standing target to bring 60 percent of its steel sector
under the control of its 10 biggest enterprises by 2015, a goal
that has been criticised by companies such as Baosteel for
causing a build-up of unprofitable capacity.
The world's biggest steelmaking nation has in the past been
accused of strong-arming state firms into pursuing unprofitable
mergers, including the protracted takeover of Benxi Iron and
Steel by its bigger local rival, Anshan Iron and Steel
Facing flak for its failure to heed market signals, China
has been trying to change the way it regulates its economy, and
aims to stop interfering directly in the approval and
construction of industrial projects and focus instead on
A new industry consolidation plan published on the website
of the Ministry of Industry and Information Technology
(www.miit.gov.cn) late on Monday said China would continue to
simplify approval procedures and also make it easier for firms
in bloated sectors like steel, cement and aluminium to finance
But the plan did not include the target, last mentioned in
official policy documents in January 2013, to put 60 percent of
China's total steel production capacity in the hands of its top
10 steel mills by the end of 2015, up from the 40 percent they
Officials acknowledge that attempts to force industries into
complying with state targets have been counterproductive, with
vice-industry minister Su Bo admitting in a Monday speech that
"the government has interfered too much".
The 60 percent target was part of a state strategy designed
to help state-owned steel firms become more competitive by
encouraging them to swallow smaller rivals, and led to a series
of high-profile mergers in the sector.
But the approach has been heavily criticised within the
industry, with big firms increasingly reluctant to take on more
Xu Lejiang, the chairman of Baoshan Iron and Steel Group
(Baosteel), China's second-biggest producer by total capacity,
said last year that the policy had created "huge monsters"
lumbered with debt and unprofitable investments.
RELENTLESS CAPACITY INCREASE
Before the global financial crisis hit in 2008, China's big
state-owned steel firms were desperate to expand their market
share through relentless capacity increases, with many firms
targeting annual production volumes of more than 50 million
But the focus on size rather than efficiency encouraged
smaller private players, backed by local governments keen to
protect valuable sources of jobs and revenues, to expand as
quickly as they could to avoid being taken over by bigger
rivals, worsening the supply glut and further eroding sector
"Some local governments, pursuing rapid economic growth and
government revenues, distorted market signals and affected the
normal investment decisions of enterprises by providing land at
low or even zero cost, cutting taxes and awarding subsidies,
resources and credit," vice-industry minister Su said.
Deng Qilin, chairman of China's fourth-biggest producer
Wuhan Iron and Steel Group, told Reuters earlier
this month that firms like his had ended their obsession with
"disorderly" expansion and were focusing on improving
"Expanding further is meaningless - if you are making
losses, having more capacity will lead to even more losses," he
He Wenbo, chairman of Baosteel's listed unit,
told reporters earlier this month that China's 10 biggest steel
producers last year accounted for 39.4 percent of total crude
steel output. He also said he expected the share of
privately-owned steel mills, now at around half, to continue to
expand over the next decade.
China has long sought to tackle problems of overcapacity in
industries like steel, and has recently focused on improving
technological standards and eliminating low-quality capacity.
Its last consolidation plan said it would focus more on
"establishing and perfecting" market mechanisms.
According to official data, utilisation rates in China's
steel sector stood at just 72 percent last year, while that for
the cement, aluminium and shipbuilding sectors reached only 73.7
percent, 71.9 percent and 75 percent, respectively.
(Additional reporting by Matthew Miller and Yan Huang; Editing
by Joseph Radford and Muralikumar Anantharaman)