Confirming the failure of striking a deal with Arcelor Mittal, the world's largest steel maker, Baotou Iron and Steel Chairman Lin Donglu said his company had ended talks and is now scouting for local partners.
"We are not talking about any actual cooperation anymore," Lin was quoted as saying by China Daily.
China's steel industry regulations bar overseas steel makers from taking a controlling stake in a joint venture.
"Because Arcelor Mittal wants to take a stake of 50 per cent or so in the venture, we failed to negotiate a deal," Lin said, adding the company is now looking at local partners, such as Shanghai-based Baosteel Group, China's biggest steel maker.
However, Arcelor Mittal plans to raise its stake in Hunan Valin Steel Tube & Wire Co when the Chinese steelmaker issues new shares.
Arcelor Mittal, which holds a 29.5 per cent stake in Hunan Valin, will take 49.3 per cent of the 520 million new shares on offer, boosting its holding to 33.3 per cent.
Hunan Valin will use the 2.3 billion yuan raised from the share sale for growth, the company said on Tuesday.
Sridhar Krishnamoorthy, manager, Arcelor Mittal, said the share placement would raise funds to help Hunan Valin increase its stake in its subsidiaries.
At the same time, China, the world's largest steel maker as well as consumer, has adopted a cautious approach to foreign giants like Arcelor Mittal's ambitious plans in the huge market, industry sources said.
For example, senior Chinese lawmakers have urged the government to accelerate its improvement of laws and regulations on mergers and acquisitions of domestic companies by foreign capitals, which, if not cautiously handled, might jeopardise the nation's industry security.
China needs improved regulations and laws to guide and manage foreign mergers and acquisitions to ward off monopoly by overseas companies and ensure national industry's security, said Ma Jinquan, a deputy to the National People's Congress, China's top legislature.
Ma, a director of the Anshan Iron and Steel Group Corporation in northeast Liaoning Province, suggested the country to enact such regulations as early as possible to encourage fair competition, standardise mergers and prevent industry monopoly.
Citing Xugong Group Construction Machinery as an example, NPC deputy Qin Chijiang said it is very shortsighted for some local companies to sell their brands with a hard-won fame to foreign companies for capitals.
The country's largest construction machinery manufacturer and distributor agreed last year to sell 85 per cent of its shares to global private equity firm Carlyle Group. "Xugong made a historical mistake," Qin, secretary general of the China Society for Finance and Banking, said.
