and taxpayers. Hebei Province had made several attempts in past years to restructure its steel industry through mergers, but some local government officials put an end to them.

Analysts say the success of this year's merger of Tangsteel and Hangsteel was partly driven by simmering fears that overseas steel groups would make a play for the two companies' market share. Last year, ArcelorMittal acquired a 28-percent stake in China Oriental Group Co. Ltd., a large steelmaker in Hebei.

On the other hand, frequent moves by its domestic rivals, especially the creation of Shandong Iron and Steel Group in March, also prompted Tangsteel and Hansteel to merge quickly.

But ultimately, it remains to be seen whether the government-orchestrated merger will be able to fully integrate with the market, said Xu of Peking University.

Blessing or curse?

Analysts believe that these mergers will give China more leverage with iron ore producers in the wake of rocketing raw material costs. Industry consolidation in China, which imports more iron ore than any other country, could add needed bargaining power in its future iron ore price talks.

Negotiations on iron ore prices, which started late last year to set prices for the current fiscal year beginning on April 1, stalled because Australian miners Rio Tinto Group and BHP Billiton held out for a freight premium and an 80-percent price hike on iron ore. The move encountered stiff opposition from China.

The standoff was eventually broken when the Chinese compromised, and Baosteel and the Australian suppliers agreed to an increase of 96.5 percent on iron ore prices, much higher than the 65-71 percent increase the country set for Brazilian suppliers.

But Jiang Qihua of the China Iron and Steel Association told Xinhua News Agency that despite the merger wave, iron ore price rises would not be held at bay within at least one or two years.

Besides worry over future iron ore prices, a large number of private steelmakers in China are concerned that they will be forced out of the market. The private mills, mostly small and medium-sized ones, fall short in meeting environmental protection standards. Worse still, with no mines of their own, they are completely dependent on imports, which are becoming more and more costly.

Private steel mills will be further squeezed when the state steel monopoly gets bigger as state-owned firms continue to merge. At least 70 percent of domestic private small and medium-sized steelmakers will be muscled out of the market in the following three to five years, Luo said. To gain a firm foothold in the cutthroat competition, private players should not be left outside the merger tide, he told China Business News.

Luo cited Hebei-based steelmaker Delong Holdings Ltd. as an example. In February, the Singapore-listed company sold a 51-percent stake to Luxembourg-based steelmaker Evraz Group for $1.5 billion.

"We could transfer market risks to foreign investors through the merger and meanwhile benefit from the capital injection and technical prowess of our partner," Ding Liguo, Chairman of Delong Holdings, told Xinhua News Agency. The introduction of investors would be instrumental in breaking the production capacity bottleneck that has choked further development, he added.