China is now making strategic moves to revitalize its steel sector. The country's National Development and Reform Commission revealed plans to accelerate the production of its top state-owned steel producers to as much as 60 percent by 2020.
The agency in charge of China's macroeconomic planning has released a mandate for the country's top 10 steel producers to expand their capacities. As of last year, China's top 10 largest steel manufacturers had a combined output of around 340 million tons or around 36.5 percent of the country's entire production capacity. China wants the companies to expand production to at least 544 million tons by next year.
To achieve this goal the government is laying out plans to encourage more mergers and acquisitions activities within the industry in order to leverage size. Economic policymakers believe that enhancing business scales should result in an improvement in the country's manufacturing might.
At the start of the 1990s up until this decade, China has been a powerhouse in the production of steel. The industry was considered to be the backbone of China's rapid economic growth, largely driven by massive investments in infrastructure and real estate projects throughout the country during that time.
As China shifted its economic focus towards consumption, innovations, and advanced technology, its steel industry's growth had gradually slowed down. In 2016, China was forced to shut down a number of its less productive steel mills, most of which were owned by the state. The shutdowns were mainly to cut excessive supply given the lower demand.
The idling of the country's steel mills between 2016 and 2018 reduced China's output by as much as 150 million tons. Steel producers had to focus more on its smaller and more efficient production facilities to boost profits.
Now, China is aiming to return to its former glory of being the world's top steel producer. One of the first steps it took was to merge two of its largest state-owned firms to form a new and much larger entity. Shanghai-based state-owned enterprise (SOE) China Baowu Steel Group will be merged with Anhui-based SOE Magang Group Holding. Baowu will be taking a 51 percent stake in Magang, combining their resources to increase overall capacity.
Baowu is currently China's largest steel SOE, producing around 100 million tons of steel annually. China believes that the combined companies should greatly enhance manufacturing efficiency with the removal of redundancies. The combined companies officially began operations back in September, effectively establishing an industrial giant that is ready to take on global competitors.
