(Yicai Global) Sept. 15 -- State-owned China Baowu Steel Group, the country's largest steel producer, will boost production capacity through mergers and acquisitions as steelmaking is its core business, said its general manager, Chen Derong, at a press briefing today.

"The total production capacity of the more than 500 steelmakers listed by the ministry of industry and information technology (MIIT) is approximately 800 million tons, and there are over 1,000 smaller underdeveloped steel producers scattered across China that are not included in the MIIT's directory. Since its foundation, Baowu Steel is mandated to reduce overcapacity in the steel industry and acquire other producers via capital operations to increase the market concentration in the industry," Chen elaborated.

The total national steel production capacity will fall to around 500 million tons in the next two decades, and Baowu will make up an increasing proportion of the total capacity, he forecast.

In April, the company set up a steel industry restructuring fund jointly with WL Ross & Co., US-China Green Fund and China Merchants Group to help Chinese steelmakers eliminate overcapacity, clean up 'zombie enterprises,' facilitate business reorganization to improve market concentration, push forward mixed-ownership reforms and promote new-generation international production capacity cooperation. The size of the fund was preliminarily set to be CNY40 billion (USD6.1 billion) to CNY80 billion.

The fund is collaborating with Baowu Steel's subsidiaries on the establishment of a metallurgical asset management company, which will function as the main platform for Baowu's M & A operations in future, Chen noted.

China Baowu Steel Group was formed after a merger of Baosteel Group and Wuhan Iron and Steel (Group) Corporation, and it is widely recognized as the largest steel producer in China.

Its crude steel production hit 63.81 million tons last year, ranking it the second largest steelmaker in the world second only to ArcelorMittal S.A. (95.45 million tons) headquartered in Luxembourg, data from the World Steel Association show.