China's state-owned steel maker Shougang Group, together with Malaysia's local steel maker Hiap Teck Venture Berhad, will build a $574.25 million integrated steel mill in Malaysia through a joint venture.

The project, called Eastern Steel, will be built on a 1,200-acre land in Kemaman, an industrial city in Malaysia's East Coast economic development region that holds moderate iron ore reserves. The project is to date China's largest foreign direct investment in Malaysia.

"The Chinese steel industry is suffering from overcapacity, that is why we venture abroad," Hu Bin, the president of Shougang Group, said during the plant's groundbreaking ceremony on Monday.

"We decided to invest in Malaysia because we find it economically stable," he added.

Shougang holds 40 per cent of the Eastern Steel project while Hiap Teck controls 55 per cent.

The plant, whose operations are expected to start mid 2013, is located next to a deep sea port for export. It is estimated to produce 1.5 million tonnes of steel slabs annually. Eastern Steel's license was to make five million tonnes of steel products per year.

About 40 per cent of Eastern Steel's products will be shipped to neighboring ASEAN (Association of Southeast Asian Nations) countries, especially Indonesia and Thailand, which ingest 4.13 million metric tonnes of steel slabs per year.

"The investment came at the right timing. The Eastern Steel mill would be a platform for us to examine and be familiarized with ASEAN," Hu told Xinhua.

"The ASEAN (Association of Southeast Asian Nations) is a huge and developing market. I think the bloc has great potentials and we are tapping into it via Malaysia," Hu said.

Shougang, China's leading steel company, has an annual crude steel output of above 30 million metric tonnes and a total annual reserve of $29 billion. It ranked 325 in global Fortune 500.