April 27, 2015 / 11:19 AM / 2 years ago

China plans mergers to cut number of big state firms to 40: state media

China's President Xi Jinping delivers a speech at a plenary session during the Asian-African Conference in Jakarta April 22, 2015. REUTERS/Beawiharta

BEIJING (Reuters) - China will likely cut the number of its central government-owned conglomerates to 40 through a series of mergers, as Beijing pushes forward a plan to overhaul the country’s underperforming state sector, state media reported on Monday.

Currently, the central government owns 112 conglomerates, including 277 public firms listed on the Shanghai or Shenzhen stock exchanges with a market capitalization of more than 10 trillion yuan ($1.6 trillion), according to the official newspaper Economic Information Daily.

The consolidation will first take place in commercial sectors, especially in competitive industries, the paper said quoting an anonymous authority.

“Resources will be increasingly concentrated on large enterprises to avoid cut-throat competition, like what CSR Corp Ltd (601766.SS) (1766.HK) and China CNR Corp Ltd 601299.SS 6199.HK did when competing against each other for projects overseas,” the paper said.

Stocks jumped to fresh seven-year highs on the report, led by heavyweights such as China Petroleum & Chemical Corp (600028.SS) and PetroChina Co Ltd (601857.SS).

Sinopec Corp (0386.HK) and PetroChina (0857.HK) late on Monday dismissed media reports their parents would merge to create a state giant, saying they have never received any official information about such a restructuring.

This is the first time Sinopec, Asia’s largest refiner, and PetroChina have formally downplayed Chinese and foreign media reports over the past few months that Beijing is considering merging Sinopec’s parent with China National Petroleum Corp, which controls PetroChina.

The state-owned Assets Supervision and Administration Commission (SASAC), which oversees central government-controlled industrial enterprises, said in response to the report in a statement on its website the newspaper didn’t verify the information in its report with the agency.

The restructuring plan is critical to President Xi Jinping’s broader push to raise the performance of China’s lumbering state sector, at a time when Beijing is trying to find the right policy mix to support the world’s second-largest economy that grew in the first quarter at its slowest pace in six years.

The policy-directed merger of CNR and CSR, China’s top two train makers, for instance created a $26 billion company able to win global deals from rivals such as Germany’s Siemens AG (SIEGn.DE) and Canada’s Bombardier Inc (BBDb.TO).

However Beijing is also keen to prevent asset stripping or corruption during the process, avoidance of which will be “the most important and core requirement” when mergers take place involving sensitive assets, the paper said.

Earlier this month, Beijing committed to stepping up public scrutiny of state firms’ financial performance, as well as to improve leadership, to increase transparency and fight corruption.

The Central Commission for Discipline Inspection, the ruling Communist Party’s top graft-buster, is also intensifying its two-year inspections of state firms in strategic sectors.

In recent weeks, China FAW Group Corp [SASACJ.UL] Chairman Xu Jianyi, Baosteel Group Vice President Cui Jian and a general manager at China National Petroleum Corp [CNPET.UL] were put under investigation for corruption.

Reporting by Shu Zhang and Matthew Miller; Additional reporting by Charlie Zhu in Hong Kong; Editing by Christopher Cushing and David Holmes

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