Massive mergers and acquisitions (M&A) are expected in Chinese state-owned enterprises (SOEs) as the country aim to build industrial giants able to face global competitors, a source close to the matter said.
"The State-owned Assets Supervision and Administration Commission (SASAC) has issued an internal document to promote the process," the source said, estimating the total number of the centrally-administered SOEs will likely be cut by more than half to 40.
It will be a priority in SOE reforms as authorities have emphasized more on quality rather than quantity, the source said.
The SASAC currently administers 112 SOEs, which are parent to 227 listed companies. The combined total market value is more than 10 trillion yuan (1.63 trillion U.S. dollars), around one sixth of the country's GDP. The businesses cover major sectors ranging from energy, military industries to public services.
However, many SOEs compete with each other, causing overlapping business, fierce infighting and even malicious competition, especially when two companies eye the same international target. The government wants to avoid such senseless competition as it strives to make companies more competitive in the global market.
Among the world's Fortune 500, Chinese SOEs top the list in construction, metals and banking but lag behind in many other industries. Cutthroat infighting is one of the reasons.
"The challenges for many Chinese enterprises come from external rivalry, rather than the domestic market," said Li Jin, vice president of China Enterprise Reform and Development Society, "The combination of companies in the same industry will help reverse disadvantageous positions."
The source said the M&A will help concentrate scattered resources to build a stronger competitive edge and prevent infighting.
Several moves have already been made toward accomplishing this strategy. China's two major bullet train makers, CSR Corporation and China CNR Corporation, have accelerated their merger. China Power Investment Corporation and State Nuclear Power Technology Corporation also initiated their own plan to form a more competitive power company.
Even the country's top oil refineries were reportedly engaged in a merger, though not yet confirmed, to build companies equivalent to Exxon Mobil or BP. Shares of China Petroleum and Chemical Corporation and PetroChina Company jumped by the 10-percent daily limit on the Shanghai Stock Exchange on Monday.
Chinese SOEs already went through reorganization after the establishment of SASAC in 2003.
"The new round of M&A will be more market-oriented and open. Official interference will be avoided," the source said.
Meanwhile, industrial analysts also called for the government to encourage private firms to avoid the possibility that dominant SOEs harm the interests of consumers.
