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China could look to draw up new regulations to restrict BHP and Rio Tinto’s business in China if the two commodities giants merge, said a Chinese government advisor. But the adviser warned that it was not clear who would take the lead in proposing the idea to the central government decision maker or legislator.
According to the government advisor who is familiar with the metals sector and related legislation, China’s anti-trust law, which will take effect from 1 August 2008, does not include any clause which emphasizes its overseas effectiveness and therefore does not have any power to influence the proposed merger of BHP and Rio Tinto. However, the government advisor argued that some new regulations should be drawn up to restrict BHP and Rio Tinto from doing business in China and with Chinese companies. China should learn from the US and EU and try to protect domestic players that are affected by overseas mega mergers.
”However, I really doubt whether Chinese steelmakers can come together and propose this idea to the decision maker or legislator,” the advisor concluded.
A provincial Chinese steel sector regulator based in the north of the country agreed with the government advisor that China should do something via the legal system to block the merger between BHP and Rio Tinto. The regulator was also concerned that there was no obvious candidate who could act as a focal point for putting such a plan into action. Baosteel, the Chinese steel giant, and the Iron and Steel Association (ISA) are exactly the kind of entities that could propose such an idea, said the regulator. However, so far, neither party has made any clear comment on the BHP/Rio Tinto deal, the regulator observed.
A Chinese iron ore importer agreed that China could and should have some influence over the BHP/Rio Tinto deal. “The key thing is whether we can find any legal access to influence the deal,” said the iron ore trader. The trader also saw little possibility that the ISA would lead in proposing any legislation against the deal. ”Each steel maker has its own idea,” said the trader. “The ISA might not be able to speak with one voice.”
The above-mentioned regulator said that he had just come back from a conference held in Beijing which had focused on steel industry consolidation. He said that he learnt from the conference that China would encourage and speed up consolidation among domestic steel makers and try to develop some steel giants to counter the impact of the overseas merger of iron-ore suppliers.
Meanwhile, China has also enhanced investment in its iron ore resources, said the regulator, citing Hebei Province as an example. The regulator said Hebei had invested several billion Yuan in its own iron ore resources and had quickly seen an increase in domestic production by about 5m tons this year.
”China’s huge investment in iron ore resources will see a good yield in two or three years,” said the regulator. He further revealed that Anshan Iron and Steel Group (An Gang Ji Tuan) and Benxi Iron and Steel (Ben Gang Ji Tuan), a merged entity as big as Baosteel, could self supply 70% of its iron ore demands. Taiyuan Iron and Steel (Tai Yuan Gang Tie Ji Tuan) can self support 60% of its iron ore demands.
”Only Baosteel and steel makers in Shandong province are more reliant on importing Australian iron-ore resources,” said the regulator.
According to the regulator, the main dispute between Chinese buyers and Australian sellers of iron-ore price in 2008 was over the shipping costs. Both sides were focused on trying to control the shipping resources, said the regulator.
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