Netherlands-registered Mittal Steel, one of the world's biggest steel makers, signed an agreement on Friday to acquire a 37.17 percent stake of a subsidiary of Hunan Valin Iron and Steel Group of China.

Mittal will pay 2.6 billion yuan (US$313 million) for the stake in Hunan Valin Steel Tube & Wire Co Ltd, a Shenzhen-listed subsidiary of Valin Group.

The deal between the two companies, when completed in the second quarter of this year as originally planned, will mark the first sizable investment by a foreign steel giant into a State-owned steel enterprise in China.

The move also echoes the government's intention to advance a new steel industry policy to encourage foreign investors to participate in the reshuffle of this fragmented industry.

The new policy, indicated late last year by an official from the National Development and Reform Commission (NDRC) - the nation's economic watchdog, is expected in the first quarter of this year.

The policy, according to the NDRC official, will also include directions on the industry's technical access, exports and the sourcing of raw materials.

Following the deal, Valin Group's stake in the listed subsidiary will fall to 37.17 percent from the current 74.35 percent, said the statement.

Mittal will provide aid to Valin in terms of technology, raw material procurement, sales, marketing and corporate management.

The merger deal is subject to final approval from the China Securities Regulatory Commission.

Analysts said that there is much room for foreign investment in China's steel industry.

China is currently the world's biggest steel producer and consumer, but foreign investment plays a tiny role in the steel industry.

Industry statistics show total investment in China's steel industry has exceeded 1,000 billion yuan (US$120 billion), but only US$1 billion of this came from foreign investment.

The China Iron and Steel Association estimated the nation's steel demand and output will total 276 million tons and 260 million tons this year.

Valin Tube & Wire, located in Central China's Hunan Province, produced more than 5 million tons of steel products in the first nine months of last year.

The company reported net profits of 701 million yuan (US$84.5 million) and revenues of 16.1 billion yuan (US$194 million) during the period.

Mittal, owned by Indian tycoon Lakshmi Mittal, has operations in 14 countries in four continents.

The company boasted a revenue in steel of approximately US$16 billion for the first nine months of 2004, and its trade volume in steel topped 32 million tons.

Mittal now has four China sales offices in Beijing, Guangzhou in South China's Guangdong Province, Urumqi in northwestern China's Xinjiang Uygur Autonomous Region, and Chengdu in southwestern China's Sichuan Province.

(China Daily January 15, 2005)