China's largest steel maker came into being on Monday as two leading companies formally merged in the north China's province of Hebei, which encircles Beijing.

The new group, Hebei Iron and Steel Group Co., was created from the combination of Tangshan Iron & Steel Group and Handan Iron & Steel Group.

The conglomerate is expected to have an annual capacity of 31.58 million tonnes of iron and steel, overtaking Shanghai-based Baosteel to become the nation's largest, and the world's fifth-largest, producer.

The Chinese government has been encouraging consolidation of the steel sector to rationalize the industry structure and eliminate obsolete facilities. The merger is part of that effort.

"The group will produce 50 million tons of iron and steel annually by the end of 2009," said Wang Yifang, board chairman of the new steel giant.

Hebei is the country's largest steel and iron ore producer. In 2007, Tangshan Iron & Steel produced 22.75 million tons of iron and steel while Handan Iron & Steel had an output of 8.33 million tons.

China is the world's largest steel producer and consumer.

(Xinhua News Agency July 1, 2008)