China’s Hebei Iron and Steel Group (HBIS) signed a memorandum of understanding with Serbia's Zelezara Smederevo on November 26, in what Serbian prime minister Alexandar Vucic said was a step towards the Chinese company’s takeover of Serbia’s only steel mill.

The content of the agreement has not been disclosed, but Vucic, who was present at the signing ceremony in Beijing, said it was “crucial” for the takeover of the steel mill by HBIS, the world’s second largest steel producer. It comes at a time when steel prices are declining and follows a failed attempt to sell Zelezara earlier this year.

“We hope we’ll be able to successfully finalise this negotiation as it is of crucial, strategic importance for Serbia’s future and the country’s development,” Vucic told journalists the day before signing the MoU.

He added that Serbia intends to sell Zelezara to support Serbia’s GDP growth - the company is Serbia’s second largest exporter - and ensure the company’s future survival and that of its 5,000 workplaces, Tanjug reported.

At a meeting on November 26, Vucic asked China’s president Xi Jinping to support HBIS’s investment in Zelezara, the Serbian government announced on its website.

“Zelezara Smederevo is good opportunity for strengthening of our economic ties. I will support HBIS ... and I wish them to increase production capacities so the steel mill will be able to supply not only Serbia but the whole region,” Xi said.

On November 25, representatives of the Independent Trade Union of Metalworkers announced, met officials from the Chinese company, saying afterwards that HBIS plans to raise production to a maximum of 2.2 tonnes per year. HBIS has also pledged not to lay off any workers if it takes over management of the Serbian company, which will make the deal more acceptable to the union.

Zelezara is the main employer in the town of Smederevo, on the Danube river bank some 50km south of Belgrade.

Zelezara was sold to United States Steel Corporation for $33mn in 2003, but was bought back by the state in 2012 for a token price of $1. A re-privatisation attempt by US-based Esmark fell through in February 2015.

Netherlands-based HPK Engineering took over Zelezara's management in March, pledging to boost production and make it profitable within six months, aided by $20mn of investments in raw materials. The new management has also been preparing the company for a privatisation attempt in 2016.

During his visit to China, Vucic signed several other agreements with his Chinese counterpart Li Keqiang, including on beef exports to China and the development of an industrial park by China in Serbia. Both Serbia and Hungary signed deals with China on the construction of the Belgrade-Budapest high-speed railway on November 24 and the construction is expected to start by the end of the year. Serbia has already carried out $1.5bn worth of joint infrastructure projects with China.