BEIJING, June 24  - Baosteel Group, China's flagship steel maker, plans to invest 28.69 billion yuan for 80 percent equity of Guangdong Steel Group Co., Ltd., a new company to be established  on the basis of the merger of two existing iron and steel groups in southern China.

     The new Guangdong Steel Group Co., Ltd., with a registered capital of 35.86 billion yuan, will be jointly funded by Baosteel Group, the parent company of Baosteel Co., Ltd. (600019.SH), Guangdong Provincial State-owned Assets Supervision and Administration  Committee and Guangzhou City State-owned Assets Supervision and  Administration Committee. And the latter two investors are committed  to the remaining 20 percent equity with 7.172 billion yuan worth of  net state-owned assets of the Shaoguan Iron and Steel Group, and Guangzhou Iron and Steel Enterprises Group.

     The new company will be the third provincial steel group in China after Hebei and Shandong steel groups. It forebodes that the consolidation of domestic iron and steel industry is more likely to develop towards regional consolidation in the form of provincial- level group, which is expected to raise the industrial concentration degree and wash out underdeveloped output capacity.

     Not long ago, the Tangshan Iron & Steel Co. (000709.SZ) and Handan Iron and Steel Group Co. was incorporated into the Hebei Iron and Steel Group, which surpasses Baosteel Group to be the largest iron and steel enterprise in China in terms of output.

     Guangdong Province is one of China's biggest steel consumers. Its demand for steel is expected to reach 50 million tons in 2010.