SOE merger process expected to accelerate in coal, power

China's centrally administered State-owned enterprises (SOEs) are steadily promoting the merger process this year as required by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), with a new merged company about to be born in the coal and power sector.

The merger plan for China Guodian Corp, one of China's biggest coal-fired power generators and Shenhua Group, the country's largest coal miner, has been reported to the State Council, China's cabinet, and the new consortium was temporarily named National Energy Investment Group, Guan Weizhu, director of safety production department at Guodian Corp said Wednesday.

The planned merger will bring total assets worth more than 1.8 trillion yuan ($267.7 billion) to the new enterprise with a liability ratio of more than 60 percent, becoming the largest power generator in China, according to Guan.

"Combining the two enterprises is really a smart move because they occupy different positions on the industrial chain, having an upstream and downstream relationship," Feng Liguo, an expert at the Beijing-based China Enterprises Confederation, told the Global Times on Wednesday.

"The vertical merger between Guodian and Shenhua, which is bound to release more market economic value, is aimed at realizing the integration of coal and power by tapping into their respective resource advantages," Feng said.

On the same day, personnel changes in other companies triggered speculation of a possible merger of domestic automakers.

The heads of China FAW Group Corp, an automaker, and China South Industries Group Corp (CSGC), one of China's largest military defense companies, will exchange their positions, China FAW Group announced on its website on Wednesday.

Xu Liuping was removed from his roles as director, general manager and deputy secretary of the Party committee at CSGC, as well as head of Changan Automobile Group, a subsidiary of CSGC, and appointed as the chairman and secretary of the Party committee of China FAW Group instead.

Xu Ping, the former chairman and secretary of the Party committee at China FAW Group, was appointed as chairman and secretary of the Party committee at CSGC. But no personnel change information was mentioned in the announcement in terms of Changan Automobile Group.

Auto industry insiders said the reversal of roles signals a merger. SASAC is likely to bring about a revolution in China's auto industry by merging China FAW Group, Dongfeng Motor Group and Changan Automobile Group.

However, some experts are not very optimistic about the merger outlook for the vehicle sector due to the lack of core competitiveness for auto SOEs and their reliance on the joint venture policy. "The difficulty lies in the change of enterprise strategy in the market with customers being the center," Feng noted.

For example, if the merger plan affects China FAW Group, which has been embedded in the system and the Northeastern industrial culture for a long time, it will not only encounter changes in terms of the market and economy, but also changes in policy and politics, Feng said.