China is likely to cut the number of its central government-owned enterprises to 40 through massive mergers and acquisitions as Beijing pushes forward a sweeping plan to overhaul the country’s underperforming state sector, according to a report on Monday from China’s Economic Information Daily.
China’s central government currently owns 112 conglomerates, including 277 public firms which are listed on the Shanghai or Shenzhen stock exchanges with a market capitalization of over 10 trillion yuan ($1.61 trillion), according to the report.
The consolidation of the state sector will first start in commercial sectors, especially in competitive industries, according to the newspaper.
“Resources will be increasingly concentrated on large enterprises to avoid cut-throat competition, like what CSR Corp Ltd and China CNR Corp Ltd did when competing against each other for projects overseas,” the report said.
The restructuring plan is key to President Xi Jinping’s broader push to boost the performance of China’s struggling state sector as Beijing grapples to find the right policy mix to support the world’s second-largest economy as growth has cooled to the slowest pace in six years during the first quarter of this year.
The policy-directed merger of China’s two top state-owned train makers (CNR and CSR) has created a $26 billion company which will threaten global rail deals from such rivals as Germany’s Siemens AG and Canada’s Bombardier Inc.
“In strengthening the main industry, the current round of mergers and acquisitions will be more market-oriented and open, to avoid the administrative allocation, such as the central rate of non-core businesses, especially the tertiary industry, will be sold to the public through the capital market,” the report said.
Avoiding losses of state assets will be “the most important and core requirement” when such mergers involving sensitive assets are take place, according to the report.
Earlier in the month, Beijing vowed to increase its scrutiny of state firms’ financial and performance data in addition to changes of enterprise leadership, in an effort to increase transparency and fight corruption. China’s top graft-buster, The Central Commission for Discipline Inspection, is also intensifying its two-year inspections of state firms in strategic sectors.
China has set its economic growth forecast for 2015 at “about 7 percent” as it struggles with a property downturn, factory overcapacity, and local debt. A growth rate of 7 percent would be China’s slowest annual rate of expansion in 25 years.