China will affirm an unofficial ban on foreign firms taking majority shares in domestic steel companies under a new policy to be issued next week, a senior industry official said. 'There will be a clause saying foreign firms will, in principle, not be permitted to hold majority stakes,' said Qi Xiangdong, vice-secretary general of the China Iron and Steel Association. The move will clarify an unwritten rule that discourages foreigners from taking over mainland steel mills. It is aimed at shoring up the market position of domestic firms, according to industry sources. 'China's steel industry is huge. There is no need for foreign investment to build new plants, and there needs to be some form of control on their ownership of domestic steel firms, as in other countries,' Mr Qi said. He said the new policy would prevent actions by foreigners that might harm the local industry's development. Few foreign firms have been allowed to take controlling stakes in mainland steel firms. Those that have are limited to small-scale, downstream processing activities such as stainless steel production. For large-scale, integrated steel smelting and processing, they have only been allowed to form 50-50 joint ventures with domestic companies to produce high value-added products. Analysts said liberalisation of the steel industry was not among China's World Trade Organisation accession commitments. A senior director at a think-tank under the industry association said the central government was keen to have foreigners and domestic private firms help restructure the mainland's fragmented and inefficient steel industry as long as they did not take management control. The mainland has more than 2,000 steel producers, with the top 10 controlling about 35 per cent of output. The director said the new industry policy set out a goal to boost this ratio to 50 per cent by 2010 and 70 per cent by 2020. 'China's steel production capacity is already close to 400 million tonnes and is in oversupply,' he said. He added that under the new policy, no major newly built steel projects would be approved. The largest domestic players might be given exemptions if their projects were commercially sound and were in coastal areas with good transport links for raw materials, he added.