Ministry proposes more mergers in key industries

Measures aim to increase global competitiveness and efficiency

Companies across nine of China's key industrial sectors are being encouraged to increase their merger activities in an effort to become more competitive overseas, and more efficient.

According to a document released on Tuesday by the Ministry of Industry and Information Technology, jointly with 11 other ministries, the "guideline for merger and reorganization of key sectors", also proposes various industrial fine-tuning measures to cut, for example, price competition and surplus production, and the duplication of research and development.

The industries being targeted are steel, automotive, cement, shipbuilding, electrolytic aluminum, rare earths, electronic and information, pharmaceutical, and industrialized agriculture.

"A common feature of these nine industries is their economies of scale," said Zhu Hongren, chief engineer of the MIIT.

However, he said these sectors also have defective structures, isolated enterprises, and lack sector leaders, which results in problems such as duplicated development activities, surplus production and vicious price competition.

"Promoting mergers and reorganizations will help improve the efficiency of resource allocation, adjust and optimize industrial structures, and improve the global competitiveness of key enterprises," he said.

In the automotive sector, for instance, the new guidelines call for the production of the top 10 automakers to account for 90 percent of the industry's total amount.

The guidelines also promise to create three to five large auto corporations that will be encouraged to focus on exploring global markets.

Zhang Qizi, assistant director of the Institute of Industrial Economics at the Chinese Academy of Social Sciences, said the targets being put forward by the authorities were sensible and reasonable, as China currently lacks large enterprises that can be fully competitive on a global scale, especially in manufacturing sectors.

He pointed out this is not the first time that government has proposed a more consolidated approach to industry in China.

"Authorities have been advocating higher industrial concentration for years - we've heard similar sounds every time there's been a downturn in some industrial sectors," he said.

"Yet, even after all these years, the same problems still exist in these sectors," he added.

Zhang suggested that simple administrative measures and policy support aren't enough to push forward the kind of industrial consolidation and technical upgrades being proposed.

"The key lies in creating healthy market competition in which only the best survive.

"But it is difficult for government to predict which will be the last ones standing, so it is a good idea not to focus solely on the development of a handful of companies," he said.

"Large companies, for instance, may have more resources to handle technical upgrades.

"Smaller and private companies are sometimes the main drivers of technical innovation, or solving industry problems, so there shouldn't be any bias toward State-owned of private businesses," he said.

He added many government-backed companies are facing increasing challenges in terms of competition internationally, because they have received government support. So there should be a fairer environment created to encourage competition, with lower industrial thresholds for private companies, as well as less protectionism by local authorities.