Mainland steps up consolidation campaign in select industries

PUBLISHED : Tuesday, 07 September, 2010, 12:00am
UPDATED : Tuesday, 07 September, 2010, 12:00am

The mainland renewed its effort yesterday to consolidate key industries - such as cement, steel and vehicles - by issuing measures that would allow more private capital to invest in key sectors and permit company mergers across provincial borders.

For several years the central government has with little success been urging companies in the vehicle, cement, steel, machinery, rare earth and aluminium industries to consolidate through mergers and acquisitions. The goal is to form several giants in each sector that can compete globally.

The State Council announced yesterday that private companies and private capital, which had been limited to minority stakes, would be permitted to take a larger share in some companies, although it was not specific about size.

The State Council will also encourage cross-provincial mergers and acquisitions. Such combinations were difficult in the past because local governments disagreed on which companies would be merged because it meant lost jobs and tax income and a reduction in gross domestic product.

To help settle the issue the central government suggested local governments could still tax the companies formed through cross-provincial mergers according to their local operations and profitability.

However, the central government faces a dilemma about how to more fully privatise while retaining partial control over some strategic industries, such as oil and gas.

Nevertheless, some mergers and acquisitions have been completed with the backing of Beijing and local governments.

Shanghai's SAIC Motor Corp took over Nanjing Automobile Group in 2007 for 2 billion yuan (HK$2.28 billion), while Chongqing Changan Automobile and Aviation Industry Corp agreed to restructure their vehicle units last November.

But the process of consolidation is often slow and complex. To speed up the process, the State-owned Assets Supervision and Administration Commission will put 20 of its 128 state enterprises in various sectors under a single asset management corporation wholly owned by the commission.

The central government aims to bring down the number of state-owned enterprises to 100 in the 11th Five-Year Plan, which ends this year.