The first state policy on China's iron and steel sector will be issued this week, an industrial insider said Wednesday.

Qi Xiangdong, deputy secretary-general of the China Iron and Steel Association, who was briefed by the National Development and Reform Commission (NDRC), released the news in an interview with the China Securities Journal.

"It will be the country's first state policy on the iron and steel sector in real sense because it was drafted by the NDRC and approved by the State Council (China's Cabinet)," Qi said.

Previously, only auto industry had its industrial policy drafted by the NDRC and approved by the State Council.

Wang Lijuan, senior engineer with the China Metallurgical Industry Planning and Research Institute and a member of the drafting committee, said that the policy has come at a critical time when the whole sector is being plagued by problems like overheated investment, improper industrial structure, repeated construction, poor quality and worsening  environmental pollution.

"Although China ranks first in the production, consumption and net import of iron and steel products, China is far from an iron-steel power," Wang said.

Strained by numerous structural problems, China's iron and steel industry can barely realize sustained development if its steel output exceeds 300 million tons." Pressure from limited resources and environmental  protection will definitely intensify," she said.

The output of China's crude steel reached 272 million tons last year, making up 25.8 percent of the world's total.

Piecemeal information from industrial insiders reveals that the new policy has set clear-cut principles on industrial development, especially long-term objectives, technical policies, industrial restructuring, corporate governance, market access and trade.

"China will tighten its control of the production capacity of the iron and steel industry to rein in the total output.

Conglomerates will assume a bigger role amidst a new round of industrial restructuring," Wang said.

The aggregated steel output of China's ten biggest players is expected to make up 50 percent of the country's total by 2010, and over 70 percent by 2020.

No more conglomerates will be approved in principle because the policy has actually raised the industrial thresholds and imposed tighter control on market access.

"For instance," Wang acknowledged, "all new projects, to get official approval, will have to meet both local and state environmental protection criteria and have a coal consumption of less than 700 kilograms and water consumption of less than six tons for every ton of steel."

Given that nearly 200 million tons of steel products in China are manufactured by small and energy-consuming companies who have no way of meeting the new industrial policy, experts claim a massive industrial restructuring will result.

In terms of capital access, another sensitive issue that concerns most industrial insiders, China is seemingly showing unprecedented open-mindedness by embracing all kinds of capital: domestic or overseas, public or private, so long as investors promise to abide by the industrial policy.

Considering the big appetite of the iron and steel sector for raw materials like iron ore and coal, the new policy is said to encourage iron-steel companies to locate themselves in ports, especially good deep-water ports.

As the proportion of imported iron ore is expected to grow from the present 40 percent to 65 percent in the future, experts said that moving factories to port cities will reduce transportation costs and sharpen the competitive capability of Chinese iron and steel products.

"The best scenario projected by the policy is the formation of rational industrial distribution by 2010, which, complete with efficient supply chains and convenient transportation routes, will allow the balanced development of market demand and the natural environment," Wang said.

Calling the next 10 years "a golden decade" for China's iron and steel industry, experts agree that it will have continuous expansion as the market demand for iron and steel products, spurred by fast urbanization and industrialization, will remain high.

"A slowdown will probably come only after the country's per capita gross domestic product hits US$3,500 to 6,000 and the contribution of a third industry exceeds 50 percent. Before that, the sector will just go full steam ahead," Wang said. 

(XInhua News Agency July 14, 2005)