China’s travel agency giants merge in latest example of SOE reform

China National Travel Service (HK) Group will merge with China International Travel Services Group (CITS) in a multibillion yuan deal that will give birth to the country’s largest tourism conglomerate, but analysts warn the consolidation won’t pay off anytime soon.

The state-owned travel industry powerhouse, known as HKCTS, saw shares of its Hong Kong-listed arm jump 7.42 per cent on Tuesday, the most in more than seven months, on speculation the transaction, riding on Beijing’s state-owned enterprise(SOE) reform, will bolster its core business.

“They still face intense competition from internet giants such as Alibaba and Tencent, which are also utilising their online resources to beef up their tourism businesses,”said Bocom International analyst Alfred Lau.

The announcement came after China’s state asset supervisor on Monday gave the green light to a restructuring proposal which would see Shanghai-listed CITS become a wholly-owned subsidiary of HKCTS.

Joseph Tung Yao-chung, executive director with the Travel Industry Council, said he expects the two companies to continue operating their travel agency businesses independently in Hong Kong with separate brand names and products.

HKCTS, whose total assets are estimated to be about 120 billion yuan (HK$139 billion) after the merger, is one of four Hong Kong-based corporate giants overseen by the State Council, with the other three being China Merchants Group, China Everbright Group and China Resources.

The reorganisation follows a wave of mergers and acquisitions of major state-owned firms as part of nationwide SOE reform during the last two years, which saw the merger of train makers China CNR and CSR, as well as shipping behemoths Cosco and China Shipping.