China Shougang Group will buy Changzhi Iron & Steel (Group) Co., Ltd for 5 million yuan after five months of negotiations, signaling a significant move in China's steel industry's cross-region reorganization policy.

The deal means Shougang Group will receive 90 percent of Changzhi's shares, and the remaining 10 percent held by Changzhi Steel. The company will change its name to Shougang Changzhi Iron & Steel (Group) Co., Ltd.

Currently Changzhi's output is 3.6 million tons and Shougang will invest 19 billion yuan to help Changzhi increase its output to 6 million tons in about three years; at that time Shougang's total output is expected to reach 18 million tons.

The merger of the two companies can strengthen Shougang's ability to better meet the market's needs since they are complementary in their products and the variety of the products will be expanded, says Xu Xiangchun, director of mysteel.com.

He also said this move is an opportunity to introduce new technology and managerial experience to Changzhi to facilitate its development

The development of other local industries can also benefit from the merger.

The government gave the merger the green light, with Wang Jun, governor of Shanxi Province attending the signing ceremony as well as other representatives from other industries.

Vice president of China Mercury Industry Planning Institute Li Xinchuang praised Shougang and said that it is a very good beginning for China steel industry's cross region reorganization.

The merger and restructuring of China's steel enterprises is being implemented step-by-step. Baosteel Group Co. bought Ningbao Iron & Steel Co. Ltd for 56.15 percent shares at 2.0214 billion yuan, and other deals are underway now.

Li also said that there are still obstacles from local governments although the central government is encouraging restructuring.