Daily Management Review

China created a rival to ArcelorMittal


09/20/2016


Chinese steelmakers Baosteel Iron and Steel, Wuhan Iron and Steel today announced their merger, which will be carried out through an exchange of shares. As a result, the market will get a new global giant, second only to ArcelorMittal in terms of production.



China created a rival to ArcelorMittal
Leading manufacturers of steel in China, Baosteel Iron and Steel and Wuhan Iron and Steel, reached a merger agreement. As they say in a statement addressed to the Shanghai Stock Exchange, the transaction will be made through exchange of shares without additional payment. To do this, Baosteel Group will issue new shares to the existing shareholders of Wuhan. The merger will create a new giant Baowu Iron and Steel Group with a production capacity of 60 million tons of steel per year. This will allow the new company to compete with the Luxembourg ArcelorMittal on the level of production.

Talks between Baosteel and Wuhan were announced in June, but the parties managed to reach the agreement just now. Their merger is the first step towards implementation of the Chinese government's plan to consolidate and reduce excess steel production in the country. China's steel industry is going through hard times: demand for steel is down in the domestic market due to slowdown in the Chinese economy, so local producers are forced to sell their products abroad at lower prices. This, incidentally, is causing resentment of Western countries, which are accusing China of dumping prices for raw materials. To somehow remedy the situation, the Chinese government decided to partially merge some state manufacturers and lay off part of the industry workers. In March, Minister of Human Resources and Social Security Yin Weimin said China is readying to shed 1.8 million jobs in the steel and coal industries. According to Shanghai Securities News, the merger announced today will be followed by another one of two major steel producers located in the northeast of China. The parties are Ansteel and Benxi Steel Group, which in terms of production took seventh and 21th places in the world respectively.

In the meantime, Beijing is waiting for the EU to promptly execute a protocol of accession of China to the WTO. Chinese Foreign Minister Wang Yi at a meeting with the head of European diplomacy Federica Mogherini expressed hope that the EU will take up provisions of Article 15 of the Protocol of China's WTO accession, which implies recognition of China as a market economy.

Mogherini, in turn, said that "the EU has currently intensified efforts on execution of provisions of Article 15 of the Protocol on the Accession of China to the WTO.

Beijing has repeatedly said that China should automatically receive status of a market economy after 11 December 2016 in accordance with the Protocol of Accession to the WTO.

Earlier, the EC stated that the EU is not ready to recognize China as a market economy because of fears associated with the excess production capacity in the country. The EU believes that granting China, which is a WTO member, with the market economy status will complicate administration of the European anti-dumping duties on Chinese goods. Europe at the same time can lose up to 3.5 million jobs, but on the other hand, it will facilitate access to the Chinese market. The country is the largest trading partner of the EU.

source: bloomberg.com






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