With oil prices around $60 a barrel, oil companies around the world are consolidating to try to create economies of scale by engaging in opportunistic buying of weaker firms. China’s oil companies are also trying to find ways to increase efficiency in order to maintain profit margins. One option is to create a megamerger among its big state oil companies in order to compete against large international oil giants such as Exxon Mobil and BP. Chinese government economic advisers have been weighing in the possibility of this megamerger. This megamerger will allow China’s oil companies to experience economies of scale.
By decreasing domestic competition in China, China hopes it will increase efficiency. China has four large oil companies, CNPC, Sinopec, Cnooc, and Sinochem. In the past, each of the four oil companies specialized in a specific aspect of the oil drilling and refining process. Recently, they have recently began expanding and overlapping, creating inefficiencies such as redundant staff and projects.
This attempt to consolidate oil companies is an attempt to re-energize the nation during times of slowing economic growth. Since China’s president Xi Jingping has been in office, his goal has been to try to revamp the economy by making China’s largest firms more competitive globally.
Source and Image: Wei, Lingling, and Brian Spegele. “China Considering Mergers Among Its Big State Oil Companies.” The Wall Street Journal, 17 Feb. 2015. Web. 17 Feb. 2015.