When Wuhan Iron and Steel, the nation's fourth largest Iron and steel producer, decided to form a joint venture with Guangxi Liuzhou iron and Steel in 2005, even the most pessimistic observers didn't think that it would take three years for the decision to become a reality.

On September 3, 2008, the two steelmakers finally formalized their joint venture in Guangxi Zhuang Autonomous Region, called Guangxi Iron and Steel Group.

The new group became the largest industrial project of the country's western development strategy. It plans to build a huge steel base in December in Fangchenggang, a major port in Guangxi.

The new group came after some wrestling between the two steelmakers and a change in the country's policy for the Beibu Gulf area in the past few years.

On March 14, 2005, the then Chinese State Councilor Tang Jiaxuan visited Nanning, the capital of Guangxi, and noted the development of Beibu Gulf could have significance for the country's economic, political and foreign affairs. He suggested giving Beibu Gulf area political and financial support and developing it as an international economic region that includes Vietnam, Singapore, Malaysia, Indonesia, the Philippines and Brunei.

In April 2005, the China Development Bank signed an agreement with the Guangxi Zhuang autonomous region to give it 11 billion yuan (US$1.61 billion) in credit.

At the end of 2005, Wuhan Iron and Steel Corporation signed an agreement with the Guangxi State Assets Supervision Commission on setting up a joint venture with Guangxi Liuzhou Iron and Steel.

In 2006-07, both steelmakers saw nice profits due to the good performance of the country's steel industry. At the same time, the two sides couldn't reach an agreement after long negotiations on how to set up the joint venture and the motivation began to flag.

In November 2007, the Guangxi Zhuang government submitted a proposal for the Guangxi Beibu Gulf Economic Area Development Plan (2006-2020) to the National Development and Reform Commission (NDRC) for approval.

On December 27, 2007, the NDRC approved the plan and presented it to the State Council.

In 2007-08, Wuhan Iron and Steel experienced its hardest year due to a sharp hike in the price of iron ore and surging logistical costs for importing the mineral resources from abroad. It began thinking of shifting its operations to coastal Guangxi to cut costs.

On January 14, 2008, Chinese Premier Wen Jiabao signed approval for the Guangxi Beibu Gulf Economic Area Development Plan (2006-2020). The State Council also upgraded the development of Guangxi Beibu Gulf Economic Area into a national development area.

As part of the development plan, the construction of an iron and steel base to be located at Fangchenggang Port in Guangxi, with a production capacity of 10 million tons of steel was also approved by country's top economic planner.

On July 30, 2008, Wuhan Iron and Steel and Liuzhou Iron and Steel decided to invest 60 billion yuan to co-build the iron and steel production base at Fangcheng Port.

When the two steelmakers finally launched their joint venture in September, Wuhan Iron and Steel Group held an 80 percent stake with a 35 billion yuan investment. The Guangxi regional administration of State-owned assets holds a 20 percent stake, in the form of all the net assets of its Liuzhou Iron and Steel Group.

"The move reflects the trend of the shift of steel industry from the inland to the coastal areas and it will strengthen steel industry's competitiveness," says Xiong Bilin, deputy director of the Industrial Development Department of the NDRC.

Currently, the production capacity of steel companies built in the coastal areas accounts for 6.4 percent of the nation's total steel production capacity.

After the Fangchenggang iron and steel base is put into operation, it can raise the percentage to 8 percent.

"Since the new steel production base is located near a coastal region and by a deepwater port, it can take advantage of its favorable geographical location by importing mineral resources and ore reserves from abroad, especially from Southeast Asian countries, thus optimizing China's steel industry structure," says Hu Wangming, vice general manager of Wuhan Iron and Steel Corp.

The steel production base in Fangchenggang will provide rolled steel to southwest and south China regions. It can also meet the ASEAN countries need for rolled steel.

According to Yan Kaiyong, head of the Equipment Management Department at Wuhan Iron and Steel Corp, the Fangcheng iron and steel base will help alleviate the steel production shortage problem in southwest and South China.

According to him, by 2010 demand for rolled steel will reach over 60 million tons a year in southwest regions. Currently the steel production in the southwest is less than 26 million tons a year, or less than 60 percent of the local demand.

And by building the base, the Guangxi Beibu Gulf area can more easily explore the market both at home and abroad, and also help strengthen China's relationship with ASEAN countries.

(China Daily September 22, 2008)