Located in Jiaonan of Qingdao, a promising mainland city on the north-eastern coast, the joint venture will involve US$5 billion from the Taiwan investor and US$1 billion from local Qingdao Steel.

Planned to be completed in 10 years, the plant is said to be capable of producing 10 million tons of steel a year, with annual sales about US$4.9 billion and net profit of US$1.2 billion.

The capacity is three times that of Capital Steel, one of China's largest steelmakers, and the net profit much more than Shanghai Baosteel's 7 billion yuan (US$845 million), reported 21st Century Business Herald.

The joint venture will produce quality steel catering for Qingdao's home-appliance and ship-building industries; as well as the country's rising car-making and real-estate industries.

Qingdao government officials are quite optimistic about the prospects for the plant.

"There will be no problem with sales," said an official. "Qingdao has big-name home-appliance makers such as Haier, Hisense and Aucma, which have great demand for sheet steel.

"Besides, Qingdao is building northern China's largest ship-building base, and China First Automobile Works (FAW) Group will build a car factory in the city. These factories, together with the national market, will easily absorb the output."

Sui Yinghui, an economist with Qingdao Academy of Social Sciences, said Formosa Plastics is eyeing the enormous demand of steel, driven by the mainland's annual economic growth of 7 per cent.

"As the State invests heavily in infrastructure projects, such as the Three Gorges dam, the Qinghai-Tibet railway, and the water-diversion project from South China to North China, the demand for steel will also grow," he said.

Although China has become the world's largest steel market, the demand for steel is still at a nascent stage.

For example, every US dollar of GDP equates to 0.12 kilograms of steel in China, but 0.6 kilograms in Malaysia.

Demands for steel products that require more complex technology, such as stainless steel, galvanized steel and flat steel, are on the increase. But now a large part of them are imported from Europe, Japan, South Korea and the United States.

It is estimated that China's annual demand for steel will go beyond 180 million tons in 2005, up 50 millions a year; while in 2005 the country will have a shortage of 44 million tons of finished steel, said Sui.

Formosa Plastic Chairman Wang Yung-ching has his reasons for choosing Qingdao as the site for such an ambitious project, said Sui.

Qingdao port surpassed Ningbao port last year to become the country's largest ore-transfer port. The port has been supplying ore to more than 20 major steelmakers in the country, including Capital Steel, Baosteel, Handan Steel and Taiyuan Steel.

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