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Mergers and acquisitions help Chinese enterprises grow

By Wang Ke: 0 Comments Print E-mail China.org.cn, March 13, 2011

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Chinese firms have entered a "new era" of capital and financing where companies' growth will be fueled by mergers and acquisitions, an industry insider told China.org.cn.

Zhu Jimin, chairman of the China Iron and Steel Association (CISA) and president of China's sixth largest steel producer Shougang Group, says he believes mergers and acquisitions will help Chinese enterprises grow. [By Wang Ke / China.org.cn.]

Zhu Jimin, current chairman of the China Iron and Steel Association (CISA) and president of Shougang Group, China's sixth largest steel producer, said he believes the government will encourage domestic firms to initiate mergers and acquisitions under the joint-stock system to push forward industrial reform.

"Low centralization, wasting of resources, rising costs of energy and raw materials, environmental pollution and frequent accidents are challenging China's industries, particularly the heavy industries like mining, steel and construction. Through mergers and acquisitions, enterprises can become stronger and have more resources to resolve these problems," Zhu said.

According to the bi-annual "Capital Confidence Barometer" survey released by accounting firm Ernst & Young in February, "35 percent of Chinese companies expect to make emerging market acquisitions, compared to 31 percent of global companies."

Meanwhile, the draft of China's 12th Five-Year Plan continues to encourage mergers and acquisitions among enterprises in heavy industries. According to the policy, the government is expected to continue to offer fiscal incentives to firms pursuing capital investment.

The Report on the 2011 Draft Plan for National Economic and Social Development issued by the National Development and Reform Commission on March 5 also stressed that governments at all levels "will continue to implement the plan for restructuring and invigorating key industries, and promulgate and implement new guidelines for industrial restructuring".

According to Zhu, the country is continuing to augment its productive capabilities in key industries such as steel, non ferrous-metals and shipbuilding.

"Mergers and acquisitions is an efficient way to reach these aims," Zhu said.

Zhu's company, Shougang, has boosted its production capacity by launching new projects and acquiring smaller mills in other provinces and autonomous regions, including Guizhou, Shanxi, Xinjiang and Hebei to reach its target annual capacity of 30 million tons by 2012.

"We plan to raise our core competitiveness by building new plants and merging regional companies. We will concentrate on a number of strategically vital products such as high-strength sheet steel for engineering and auto sheet," Zhu added.

Shougang's latest acquisition of Shanxi-based Changzhi Iron & Steel is aimed at building the mill into a long steel products base. The company paid 500 million yuan for a 90 percent stake in Changzhi Iron & Steel, which has an annual production capacity of 3 million tons.

Zhu also plans to invest 19 billion yuan over the next three years to boost Shougang's annual steel production capacity to 6 million tons.

The restructured steel industry will be based along China's north to south coastline, consisting of the Angang Liaoning base, the Shougang Hebei Caofeidian base, the Baosteel Zhanjiang base and Wugang bases, he added.

Shougang's merger and acquisition strategy is also in line with the government's guidance on industry consolidation, with large steel mills taking the lead, Zhu said. He also expressed that firms in other industries have similar potential to gain strength using this formula.

"A lot of Chinese enterprises already possess international potential. Through cautious and proper mergers and acquisitions, they can grow faster," Zhu said.