China’s leadership planning mergers for State-Owned Enterprises

Published on Author haj18

China’s leadership is preparing massive mergers for State-Owned Enterprises to eliminate inefficiency and grow national competitiveness. They announced that there will be specific guideline for restructure of over one hundred thousand State-Owned Enterprises in a few months.

Energy, resource and telecommunication industries which are strategically important sectors are main targets of restructure. These enterprises will be reorganized as asset investment companies and managed like private businesses. The purpose is to lower the reliance on government and to invigorate the mobility of private funds. The government is already pressuring the SOEs to maximize profits and prepares them for public listing. After the merger, state companies are required to hand the government 30% of their profits by 2020, a 15% increase from now.

Though this consolidation plan can streamline the management of state asset by organizing as asset investment companies but the consolidation might possibly discourage private participation in the economy by regulating private investors to hold controlling stakes in state firms and continue its favor to SOEs in subsidizing resources over private businesses.

2 Responses to China’s leadership planning mergers for State-Owned Enterprises

  1. Consolidation was the global trend in 2014 with the greatest volume of M&A activity to date. 2015 seems poised to continue that trend. China is no exception. SOE consolidation provides an opportunity to revamp corporations and technologies that predate economic reform China. Private sector growth dwarfs the public SOEs so it will be interesting to see how this controlled privatization will increase public margins and affect the overall competitive landscape.

  2. Does this ring right? Doesn’t the merger of two inefficient firms merely produce one large inefficient firm? If anything, if it’s hard for a medium-sized firm to shut down excess capacity, lay off managers and workers, or otherwise restructure, won’t it be even harder for a large firm to do so, as there will be more vested interests with political connections and more local governments wanting to forestall change?