China has experienced rocketing economic growth over the last decade, fanned by investment, which created the problems of overcapacity among a range of energy and resource industries. During the economic slowdown last year, a number of companies in the sectors were driven to the brink of bankruptcy.
"The country's steel companies had unprecedented difficulties last year amid the economic slowdown. The new guidelines offer a good opportunity for the steel industry to consolidate in order to get out of its plight," Qu Xiuli, deputy secretary-general of the China Iron and Steel Association (CISA), told the Global Times.
The CISA's members reported a total loss of 1.97 billion yuan ($317 million) in the first 11 months of 2012 and the core steel business of the industry is expected to make a loss for the year, the latest data from the CISA showed.
"We still need detailed measures to get the guidelines implemented, such as preferential tax policies. Otherwise companies will not be enthusiastic about consolidation," Qu said.
"Consolidation will be difficult in these industries, especially the automobile industry. With the government's policy to curb property prices and the sluggish stock market, the auto sector is a pillar industry for local governments, creating revenue and jobs," Su Hui, deputy director of the auto market division at the China Automobile Dealers Association, told the Global Times.
"The biggest obstacle will be from local governments. Unless competition in the auto market is too fierce to allow companies to survive, local governments will be reluctant to encourage consolidation," said Su.
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