A Study On The Happening Mechanism Of Cross-region M&As In China's Iron And Steel Industry

Since China adopted the reform and opening-up policy in late 1978, the iron and steel industry has developed rapidly, especially for the last two decades. Crude steel output of our country has ranked Top One in the world for 13 successive years since 1996. In the year 2008, the output was over 500 million tons, which made up 38% of the world's total output. It is natural to treat our country as a big iron and steel making country. However, the development of China's iron and steel industry is based on an extensive pattern, which resulted in problems such as over-capacity of production, low industry concentration ration, unreasonable geographical layout and so on. China is far from a strong iron and steel making country. With the expansion of global financial crisis and drop of the product price, the whole industry of our country is confronted with grim situation, and the industrial adjustment is desiderated.According to the NEG theory, factors such as transportation cost, forward and backward connections among industries, and technology spillover effect could cause the agglomeration of economic activities. Under the situation of geographical separation of headquarters and factories, with the decrease of generalized transportation cost, headquarters have a trend of concentration while the factories tend to decentralize. Compared with traditional comparative advantages, agglomeration advantages are self-reinforced and play an increasingly important role in the modern industry location. Since the location of iron and steel industry in our country is decentralized, cross-region M&As in effect have the function of gathering headquarters as well as dispersing factories to get advantages from both regions, which is benefitial for the development of our iron and steel industry.However, just as M&As in other fields, iron and steel industry of our country suffers from a low cross-region M&As rate. Although under the hard situation and industry policies, the cross-region M&As rate has increased in recent years, but the improvement is far from significant. Besides, China is in the period of economic transition, low marketization degree and over government intervention have raised the generalized transportation cost of resource flows among different regions. As a result, the resource allocation is to some extent distorted. Facing these realities, we can't help asking:What is the happening mechanism of cross-region M&As in our iron and steel industry? That is to say, did the cross-region M&As in our iron and steel industry happen on the motive of making use of advantages from both regions so as to optimize the allocation of resources? Is the low rate of cross-region M&As a result of enterprise's rational choice, or affected institutional factors under economic transition (especially the intervention of local governments)? That's where the theme of this paper came from.This paper combines the achievements of related theories and the economic transition background of our country, and analyses the happening mechanism of cross-region M&As in our iron and steel industry. The study shows that agglomeration advantages of the NEG theory have a significant effect on the happening of cross-region M&As in our iron and steel industry, while the effects from traditional comparative advantages are insignificant. The cross-region M&As could reflect the motive of making use of the headquarter agglomeration advantage, the accumulated advantage from the merger region, and factory agglomeration advantage from the merged region. But further study shows that the accumulated advantage of merger region is mainly in the scale aspect, not in the technology aspect (which is quite important for the industry development). Furthermore, this paper finds that the low cross-region M&As rate is a result of both the law of enterprise expansion and the intervention of local governments. The high transferring cost resulted by government intervention and shortage of transferring mechanism are likely to be important causes of the above mentioned low rate. Therefore, in order to drive forward the revitalization and healthy development of our iron and steel industry, we should use policy guide to enforce the effects of technological advantage; deepen the reform of fiscal and taxation system, as well as the achievement accessing system of officials; fasten the reform of state-owned iron and steel enterprises to avoid over intervention from local governments; improve the supporting facilities to build a sound transferring mechanism; and, according to specific situation of corporates and regions, use cross-region M&As to fasten the industry location transfer to coastal harbours.