The target set for 2010 also includes lowering the industry's energy use from 760 kilograms of standard coal per ton of output, as reported in 2005, to 730 kilograms, as well as reducing freshwater usage from 12 tons to 6 tons.

Through mergers and acquisitions, China will have "two or three" I&S corporations with 30 million or more tons of annual production capacity, and a string of companies with more than 10 million tons, according to information released by the State Council.

Last year, China produced 420 million tons and consumed 384 tons of iron and steel, ranking first in the world for 11 years in a row.

China has developed its I&S industry by leaps and bounds since the economy opened up in the late 1970s. Because the emphasis has been placed on mass production, the industry became a culprit of high energy use and pollution discharge.

While the industry's output accounted for 3.14 percent of the nation's GDP (gross domestic product), it also claimed 15 percent of the nation's total energy consumption and discharged 10 percent of China's total industrial wastewater, 15 percent of its total industrial dust and 10 percent of its sulphur dioxide emissions.

According to Vice-Premier Zeng Peiyan at the State Council meeting: "If China can manage to dispose of its outdated I&S production capacity, it can save, each year, 50 million tons of standard coal and 100 million tons of freshwater, while reducing at least 400,000 tons of sulphur dioxide emission."

Even worse, most of China's I&S companies are located close to densely populated cities. Some are areas prone to water shortages or major scenic attractions, causing negative impact on the human living environment.

According to China's 11th Five Year Plan, between 2006 and 2010 the nation will have to cut its energy consumption per unit of GDP by 20 percent and its pollution discharge by 10 percent.

Shedding off unwanted production capacity is also "conducive to upgrading the industry in terms of geographical deployment and product structure", said the vice-premier.

China has more low-end steel supplies than it needs, while it still depends on imports for high-end supplies used for making automobiles and ships. Eliminating its low-end capacity can make the industry more competitive, and in some cases, more capable of financing their relocation programs, Zeng said.

Two years ago, two large I&S companies, Anshan and Benxi, both from Liaoning Province, merged into the Anben Steel Group Co to become the nation's largest steel maker.

In January 2007, however, Anben was overtaken by Shanghai-based Baosteel Group, after Baosteel acquired 69.6 percent of Urumqi-based Bayi Iron and Steel Co for 3 billion yuan.

Baosteel has also been in merger talks with Inner Mongolia-based Baotou Iron and Steel Group.

And for the newly relocated Shougang Corp, formerly based in Beijing, it is highly likely, industry sources say, that its first takeover targets will be some of the more than 300 steel companies in its nearby Hebei Province.

Editor:Chen Ge