The Liaoning Province-based Anshan Iron and Steel Group (Ansteel) received a green light from the government to merge with the Pangang Group in Sichuan Province.

China's desire for a stronger, cleaner steel industry is deep-rooted. Bolstering its bargaining power in the international iron ore price negotiations also required consolidating the crowded, weak sector into a few bigger players through mergers and acquisitions.

For the two companies the deal could create a win-win situation. "The merger will not only enhance Ansteel's capacities, but also help strengthen the financial position of Pangang," said Li Xinchuang, President of China Metallurgical Industry Planning and Research Institute.

Pangang enjoys a technical edge in railway steel products while Ansteel excels in products with high value-added such as flat sheets, so they would fill the gaps for each other, said Li.

A consolidation of the two firms would help expansion-minded Ansteel broaden its presence to the resource-rich western regions, he said.

The only question is whether the two could make a success out of post-merger integrations. Ansteel had acquired the Benxi Iron & Steel (Group) Co. Ltd. However, due to intractable financial disputes, both have adhered to separate operations, watering down the so-called "tie-up."

"But our integrations would be much easier since we share a lot in management and corporate culture," said Zhang Xiaogang, General Manager of Ansteel. "It was Ansteel that helped build Pangang in the 1960s."