A Chinese official warned in Beijing on Monday that the nation's cement producers would face tough competition from foreign counterparts if they do not step up mergers and acquisitions (M&A).

Niu Jianguo, deputy director of the Economic Operation Department of the National Development and Reform Commission (NDRC), the country's leading industrial watchdog, told a press conference that the cement industry was facing "severe competition" as foreign investors are quickening the pace in regrouping China's cement market.

Too many cement enterprises with small-scale production capacity and low industrial centralization are major issues facing the industry, he said. The average production capacity of China's cement producers was 200,000 tons annually in 2005.

He noted the market share of China's 10 biggest cement producers was only 15 percent of the country's total.

While the output of the world's two largest cement producers, Holcim and Lafarge, exceeds 150 million tons each.

NDRC statistics showed that in 2005, many Chinese cement enterprises reported bad performance. China's cement output stood at 1.06 billion tons last year, up 10 percent from the previous year, while the profit for the cement industry was down by 38.7 percent on 2004

Among the country's 5,149 cement enterprises, 1,851, or 35.9 percent, reported losses last year which totaled 4.89 billion yuan (611 million U.S. dollars), a year on year rise of 74 percent.

A recent circular jointly issued by the NDRC and seven other central departments said China will step up the restructuring of the cement industry in the next five years to realize the goal of increasing the country's cement output capacity to 1.25 billion tons by 2010.

By then, the annual average output capacity of cement producers will increase from the present 200,000 tons to around 400,000 tons and the number of cement producers will be trimmed to 3,500.

The NDRC will phase out cement production lines with small capacity and outdated technology during the country's 11th Five-Year (2006-2010) plan period.

M&As by foreign investors have been seen frequently in the cement market lately.

French cement giant Lafarge, the world leader in building materials, now owns three cement plants in Guizhou Province in Southwest China with a combined annual output capacity of two million tons.

Lafarge plans to invest 150 million U.S. dollars in the cement industry in Southwest China by 2010.

German cement producer Heidelberg last year purchased two cement plants in North China's Hebei Province.

Swiss Holcim formed a strategic alliance with the Huaxin Cement in Hubei Province and has become the second largest shareholder of the cement plant.

On whether foreign investors can monopolize China's cement market, Niu said the market share of foreign investors is less than 5 percent of the country's total, which is relatively too small to monopolize the market.

Source: Xinhua