China Ends Ban on Foreign Majority Control in Steel Sector

13 March 2015

China will end a ban on foreign majority control of its steel companies, a long-touted overhaul widely seen by analysts as coming too late to revive the nation’s beleaguered industry.

The country’s top economic planning agency, the National Development & Reform Commission, said in a statement Friday that steel would be among 349 industries designated under a policy category it called “foreign investment encouraged,” which opens the sector to foreign control.

The change would be effective April 10, the agency said.

State industry officials a year ago had told reporters the nine-year-old ban was under review. Beijing previously viewed steel as a strategic sector, supplying some of its most crucial industries, and was reluctant to allow outside control—though it allowed minority stakes under certain conditions.

The Chinese government in July 2005 blocked foreign investors from taking controlling stakes in domestic steel companies, thwarting a bid by Mittal Steel Co. to acquire control of Shenzhen-listed Hunan Valin Iron & Steel Co. Mittal was one of the companies that merged to become the world’s largest steelmaker, ArcelorMittal SA, the following year.

Since then, proposals to lift the ban have periodically surfaced from Chinese steelmakers hopeful for injections of foreign capital. Last year, the commission deregulated foreign participation in previously closed infrastructure projects including railways, gas pipelines, telecommunications and clean energy, setting the stage for a wider liberalization.

The latest move comes at a time when China’s economic slowdown has taken a heavy toll on steelmakers. Pressure to cut environmental pollution and slowing demand from big-ticket construction have sent Shanghai steel prices plummeting 41% over the past two years to 2,146 yuan ($343) a metric ton. The latest move isn’t likely to spark a flurry of bids from foreign companies, analysts say.

“You’re looking at an industry that has huge overcapacity and declining demand—by and large, it’s not the most attractive sector,” said Oliver Barron, head of Beijing research for investment bank North Square Blue Oak. The Chinese government has focused too much on opening up unprofitable sectors, such as upstream oil exploration and coal-to-chemical businesses, rather than more-attractive mainstream industries such as telecommunications, Mr. Barron said.

The state-backed China Iron & Steel Association has for more than a year publicly supported opening up the steel sector. Part of the pressure to do so, its officials say, comes from mounting concern from export destinations over allegations of dumping of steel products from Chinese mills seeking a way out of the economic doldrums at home.

China’s steel-product exports last year rose to a record 94 million tons, customs data showed.

“One reason why trade friction has been rising is that foreign investment isn’t allowed,” Zhang Changfu, the association’s secretary-general, said last year. “This has to change. if you don’t let people in, how do you go out?”