Analysis Citic's mega takeover deal comes as win-win for Beijing and Hong Kong

One move, two gains. Nowadays Beijing and Hong Kong may not agree on a lot of things, but the Citic deal is clearly a win-win for both sides.

Beijing's decision to let a Hong Kong-listed unit of Citic Group take over its parent company in a deal valued at about 225 billion yuan (HK$283.6 billion) surprised the financial community on Wednesday evening. In fact, the more surprised you feel, the clearer Beijing's resolve to reform its economic structure.

If you read the history of Citic Group - how the firm was founded with special permission from the late paramount leader, Deng Xiaoping, about 35 years ago as the first new type of state-owned enterprises to help the mainland attract foreign capital and expand investments abroad - any big decision about the company will not be made without approval by the very top-level mainland leaders.

That is to say the asset purchase of Citic Group by Citic Pacific, the Hong Kong-listed steel-to-property conglomerate, is more than just a mega-sized acquisition; it means the beginning of a new round of government-led reforms on its major state-owned enterprises through completely new thinking, such as letting the "son" (Citic Pacific) acquire its "father" (Citic Group in this case).

Such a son-to-acquire-father-move is controversial in that it rarely happens in the mainland's business world, in particular to any significant state firm the size of Citic, which is a sign of how desperate Beijing is to reform its state enterprises, many of which have often been linked with big bribery and corruption scandals. They are also under pressure to be transparent about corporate governance and show increased management efficiency.

Interestingly, about 35 years ago when Deng invited Rong Yiren to launch Citic Group, formerly known as China International Trust and Investment Corp, Beijing faced more or less the same challenges as it did with economic reform today. Rong was one of the top business tycoons from Shanghai who was later appointed one of the vice-presidents of the government and divided his time in business and politics among Shanghai, Hong Kong and Beijing.