Zhenhai Refining & Chemical has formed a committee to look for merger and acquisition opportunities inside and outside its core crude oil refining business. Executive director Chen Hongzhan said the H-share firm had separated policy-making from management by splitting the positions of chairman and general manager at its annual general meeting. Zhang Jiaren has retained his chairmanship, and vice-general manager Sun Weijun has been promoted to general manager. Under the board, three committees for finance, audit and industrial investments, mergers and acquisitions were established. Mr Chen, also a member of the merger and acquisition committee, said Zhenhai was 'seriously' considering an asset restructuring, but had not chosen a takeover target. He said Zhenhai could take over enterprises away from its core operations to achieve diversification as long as they were profitable and had promising prospects. He cited telecommunications and communications projects as examples. 'It will be an alliance of two strong companies, but not a strong company merging with a weak one,' he said. Brushing aside worries that Zhenhai would allocate listing proceeds to non-core businesses, Mr Chen said funds for the phase three expansion of its refining capacity would not be used for other investments. He said the move would provide Zhenhai with added growth potential. Xu Sujing, chief economist at China Petrochemical Corp, which owns 75 per cent of Zhenhai, said China's policy was to let strong companies merge in order to build up large enterprises that have the potential to compete in the international marketplace. Mr Chen revealed Zhenhai's latest plan at a seminar on China's petrochemical sector organised by ING Barings. The brokerage's senior investment analyst Alex Conroy said the petrochemical industry was pushed in the direction of a major restructuring, as it was caught by flat prices and rising costs. She said about 40 per cent of chemical enterprises were expected to bleed red ink in the current downturn, which would trigger a restructuring that would reduce the market players to several major producers. It could be done by closing down producers too small and insufficient to survive and consolidating, through merger and acquisition, the small players that have the potential to expand and turn profitable.