Local officials are reluctant to shut down revenue producers Small producers in the mainland's fragmented steel industry are likely to resist growing pressure to consolidate their operations next year, industry observers say. Their battle for survival is likely to be aided by local governments who are anxious to retain investment flows and tax revenues and fear a rise in unemployment if mergers or closures go ahead. They might also argue that the producers are profitable - for the moment. 'While a misallocation of the state's resources has resulted in overinvestment in the low-end segment of the steel sector, the concern is a lack of determination on the part of local governments [to push for consolidation], as they want to keep workers employed,' noted Xinhua Finance managing director of credit ratings, Ivan Chung. He added that local governments would be tempted to reprieve some steel projects - which the central government had ordered to shut down - if they believed the crackdown on overinvestment was losing momentum. Their interest was to maintain local investments and tax revenues, Mr Chung pointed out. For the moment, however, policymakers have vowed to maintain the economic austerity measures to relieve bottlenecks in the underinvested sectors of transportation, coal and power. In April, Beijing ordered a national audit on steel projects and also halted the construction of projects that proceeded without its approval or were deemed too small in scale, low in efficiency and environmentally unfriendly. Beijing Metal Consulting chief executive Xu Zhongbo said many state-owned enterprises (SOE) lack the determination to merge with others amid a downturn. 'Many SOE bosses realise the oversupply problem, but many still have the mentality that as long as they produce more, one day they will make a profit,' he told the South China Morning Post on the sidelines of the CLSA investors forum last week. The bosses also worry about losing their jobs, he added. An example is the proposed merger of the country's second-largest steelmaker Anshan Group, the fifth-largest Benxi Group, and the relatively small Beitai Group, all in Liaoning province.
