Shanghai Baosteel Group Corporation, the second-largest steel producer in the world measured by crude steel output, said work is underway on a key project in Zhanjiang port in South China, Shanghai Securities News reported on Tuesday.

"We plan to start the main work within the year. And a first production line for cold-rolled and hot-rolled steel will be operational before 2015," Sheng Genghong, general manager of Baosteel Zhanjiang Iron & Steel Co Ltd was quoted as saying.

The project, which also involves the construction of power plants and port facilities, will require a total investment of 69.68 billion yuan ($10.98 billion) and was approved by the National Development and Reform Commission in May.

An unnamed source in Baosteel was quoted as saying the registered capital of this company will increased to 20 billion yuan as a result, with Guangdong provincial government taking a 10 percent stake.

China has been encouraging large state-owned mills to shift operations further to the coast to slash logistics costs and improve the environment in urban areas. It aims to move 40 percent of total steel capacity to the coast by 2015.