China has approved two mergers involving major steel producers in a bid to further rationalize the sector, according to the Xinhua news agency in Beijing.

The National Development and Reform Commission approved Shanghai-based Baosteel Group's acquisition of Shaogang Iron and Steel and Guangzhou Iron and Steel, two steelmakers in the southern Guangdong Province. Also approved was a merger of Wuhan Iron and Steel and Liuzhou Iron and Steel.

The moves are meant to rationalize the steel industry, eliminate outdated production capacity and sharpen the competitiveness of domestic steel enterprises, according to the commission.

China's official industry policy states that by 2010, the crude steel output of the top 10 producers should account for 50% of the total, then rising to 70% by 2020. The recent trend has been just the opposite, with figures indicating increased fragmentation. The production share of the top 10 steelmakers declined to 35% in 2006 from 46% in 2001.

Luo Bingsheng, secretary general of the China Iron & Steel Association, has said the reorganization of the industry should be based on the top four companies: Baosteel Group, Anshan-Benxi Steel, the Shougang-Tangshan Steel and Wuhan Iron and Steel Group.

The Xinhua news agency says China has been upgrading its steelmaking power by consolidating players with mergers and link-ups. Earlier, officials in Shandong Province announced Jinan Iron and Steel Group and Laiwu Steel Group—the sixth and seventh largest steelmakers in the country, respectively, and both based in the eastern province—would be combined into the Shandong Iron and Steel Group. Under the provincial steel industry plan, the new group would have an annual output of 31.6 million tons, second to Baosteel, the country's largest steel producer.

The consolidation fits into the government's move to control China's steel exports, which are expected to fall 27% this year, Xinhua has reported, citing China Iron and Steel Association projections of exports at 52.5 million metric tons.