Merger of train giants CSR and CNR flags consolidation in China state sector

The merger between the mainland's two rolling stock makers likely heralds a wave of consolidation among state-owned enterprises this year as Beijing steps up efforts to eliminate excess industrial capacity and boost technology exports.

Creating a train-making giant that can compete on the world stage reflects Beijing's strategy of creating super-sized state-backed conglomerates that have global clout and will stop value-destroying bidding wars for market share abroad.

Li Jin, a vice-president of China Enterprise Reform and Development Society, a think tank run by the powerful State-owned Assets Supervision and Administration Commission and which advises the government on industrial policy, told the South China Morning Post the merger between China CSR Corp and China CNR Corp would be the model for a broad-based restructuring plan.

"There are policies that have been modified and reviewed a dozen times, which I expect to be released soon after Lunar New Year," said Li, who had seen drafts of the policy documents. "Those papers will provide guidance on consolidating state firms operating in similar industries, setting up a holding entity in each of the key sectors, and guidelines on mixed ownership reform."

The infrastructure, steel-making and power sectors were likely targets, he said.

"Top executives at those firms haven't been able to sit tight and sleep well at night," he said, hinting at the wide sweep of the reform to come.

The mainland's top two train manufacturers on Tuesday unveiled a long-awaited plan to merge through a share swap, 14 years after Beijing ordered them to split. CSR will issue shares to all CNR shareholders at a 1:1.1 ratio, according to announcements on the Hong Kong and Shanghai bourses.