Made in China: Beijing plans new wave of state firm consolidation

BEIJING/HONG KONG (Reuters) – China is poised to embark on a fresh round of industrial consolidation, as part of a sweeping plan to reinvigorate the country’s inefficient state-owned enterprises and raise the global competitiveness of domestic industry.

A woman walks at the Bund in front of the financial district of Pudong in Shanghai March 5, 2015. REUTERS/Aly Song

The initiative, dubbed “Made in China 2025”, focuses on promoting key sectors, led by railways and nuclear power plant construction, in offshore markets, in Beijing’s latest move to create leading international giants.

“Without size and strength internationalization is fairly difficult,” said Li Dongsheng, chief executive of Chinese mobile telephone and television set giant TCL Corp, explaining the rationale behind consolidation.

A restructuring plan, expected to be released before the end of March, will address issues ranging from the establishment of asset management companies to oversee state shareholding, to the introduction of non-state investment and performance-based compensation schemes at government-controlled firms, experts say.

Improving the efficiency at state-owned enterprises (SOEs), which dominate crucial sectors of China’s economy, is critical as the country struggles to maintain the breakneck pace of growth it has delivered for two decades.

Premier Li Keqiang outlined the “2025” strategy, which also includes promoting machinery and communications equipment, automobiles, aircraft and electronics, in his address to the annual gathering of China’s rubber-stamp parliament, which concludes later this week.

The plan is part of a broader push by President Xi Jinping to raise the performance of China’s lumbering state sector.

The government is seeking to strengthen its control of lifeline industries, including energy, transportation and national security enterprises, while relaxing grips on non-essential sectors through stake sales and stock market listings.

“China wants to create more globally competitive businesses,” said Andrew Baston, research director of consultancy Gavekal Dragonomics in Beijing. “One way to do that is to force companies to become larger.”


China has been experimenting with the creation of large, globally-competitive groups since the 15th Communist Party Congress in 1997. While mergers in the nuclear and railway industry anchor the current round of consolidation, Beijing may further shake-up other top manufacturers, as it seeks to create more national champions and boost exports of high-end equipment.

On the same day last week that Li introduced the 2025 plan, the country’s state assets regulator approved the tie-up of leading train makers China CNR Corp Ltd and China CSR Corp Ltd., after the two companies announced a merger plan in December.

In February, China Power Investment Corp (CPI) and State Nuclear Power Technology Corp (SNPTC) announced they were exploring a merger, to create a group which analysts estimate would have total assets of more than $96 billion.

“Consolidation for China must be seen from a global perspective,” said Zhu Jianfang, chief economist at CITIC Securities in Beijing. “I believe there would be some more consolidation in various industries.”

Beijing is also likely to use mergers to create more champions in the shipbuilding, electronics and construction sectors, industry experts say.

Merger plans may already be under way at China State Shipbuilding Corp and China Shipbuilding Industry Corp, according to industry insiders and local Chinese media reports.


Anticipated state sector reform has triggered speculative demand for shares of listed units of major SOEs that analysts say may face consolidation, as well as for shares of local SOEs likely to benefit from potential restructuring. ((

Shares in China CNR Corp 601299.SS and CSR Corp 601766.SS both rose by 10 percent – the maximum allowed per trading day – on March 5, hours before the companies announced that their merger had been approved by the State-owned Assets Supervision and Administration Commission (SASAC).

Shares of the listed units of China Power Investment have also soared.

Some industry leaders and analysts, nonetheless, are skeptical that state-dictated mergers will create stronger, more globally-competitive state enterprises. They noted that the expansion of major SOEs in the past decade was fueled by cheap loans and subsidies, and the growth came at the expense of efficiencies.

Chinese oil and gas industry experts say the sector might undergo some asset restructuring, but they shrugged off an overseas newspaper report last month that China would merge two of the country’s largest state-owned oil groups, China National Petroleum Corp and Sinopec Group.

Such a merger would create a monopoly too big to manage and hurt Chinese consumers, they say.

Wu Da, a portfolio manager at Beijing-based Changsheng Fund Management Co, said his company has been actively searching for stocks likely to benefit from the current state sector reform.

“That has become one of our top priorities,” he said, adding that many local SOEs, like those in Anhui province and Shanghai, may receive asset injections from their parents or be listed.

(The story inserts dropped word “of” in paragraph 4)

Additional reporting by Fang Yan in BEIJING and Brenda Goh in SHANGHAI; Editing by Alex Richardson

Our Standards: The Thomson Reuters Trust Principles.

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