(Yicai Global) Jan. 10 -- The northern Shanxi province set up China's first iron and steel industry fund co-founded by private and state-owned enterprises. With a total size of CNY5 billion (USD765 million), the fund will be utilized to promote mergers, acquisitions and restructuring and upgrading of the local iron and steel industry and to enhance industry concentration.

The state-owned sponsor of the fund is an investment company affiliated to State-owned Assets Supervision and Administration Commission of Shanxi province, while the private investors include Beijing Jianlong Heavy Industry Group Co. and Shaanxi Blower (Group) Co., as well as some other enterprises. 

After it is established, the fund will strive to change the heavy-asset and high-liability model of operation of traditional steel enterprises, and will set up a platform for the integration, innovation and transformation of companies to optimize the allocation of resources and resolve the excess capacity of the iron and steel industry, said Zhu Peng, mayor of Yuncheng, Shanxi province.

At present, China's steel industry has a low degree of concentration and is prone to vicious price war and overcapacity. The top four steel companies in the US held a market share of 70 percent by total output; and the top four steel companies in Japan had a combined market share of 83.3 percent. However, the top 10 steel enterprises in China occupied only a 34.2 percent market share by total output.

Shanxi's is the third iron and steel industry fund established in China. The first two funds were initiated by China Baowu Steel Group Corporation and HBIS Group, two large state-owned groups.