Beijing may merge three state-owned oil companies

China has suggested it may merge portions of its three state-owned oil companies as part of its drive to reform inefficient state-owned enterprises (SOEs).

But the authorities will avoid pursuing bankruptcies amid such reforms so that job losses can be minimised, its state assets regulator said yesterday.

State-Owned Assets Supervision and Administration Commission (Sasac) head Xiao Yaqing made these comments while outlining his organisation's strategy this year, adding that China views Singapore's Temasek Holdings as a "role model".

With SOE reform seen as crucial to reviving growth, Mr Xiao said Sasac is "hard at work removing unnecessary parts" from state-owned firms. These include the petroleum industry, where rampant graft had been uncovered in recent years in the three giants PetroChina, Sinopec and China National Offshore Oil Corporation.

Mr Xiao said there was scope for both vertical and horizontal integration among SOEs, agreeing with recent criticism from former Sinopec chairman Fu Chengyu that the three oil firms' overlapping supply chains hindered growth.

"This problem isn't just with the three big oil firms but with other companies as well, so this is a problem we need to resolve in the next step of our reform," he said.

But SOE reforms have raised concerns of further job losses in China, after the government announced recently that at least 1.8 million people are expected to lose their jobs in the steel and coal sectors this year as part of efforts to reduce the country's overcapacity.

Last December, the authorities had set a two-year deadline for loss-making enterprises owned by the central government to improve their performance. Firms that suffered losses for three straight years were liable to be shut down.

When China went through similar reforms in the 1990s, 28 million workers lost their jobs. Mr Xiao, however, stressed that China's "foundations are much stronger" now and that the government will avoid bankrupting firms.

"Protecting the interests of workers is an important aspect of the next stage of reform," he said. "There will be more mergers and restructuring, and as few bankruptcies as possible."

Sasac has already begun the process, with high-profile mergers last year between shipping groups and train makers.

The merger of 12 central government-owned SOEs has resulted in the number of firms administered by Sasac dropping from 112 to 106.

Their returns have stabilised at the same time, noted Mr Xiao.

Profits of the central government's SOEs grew 4.7 per cent in the first two months of this year from the same period last year, after falling 32 per cent from 2014.

Responding to a Bloomberg reporter's question on whether China will continue to learn from Temasek for its SOE reforms, Mr Xiao said Temasek has "always been a role model".

Sasac had for years looked to Temasek to learn how to make China's SOEs more market-oriented and open to partial private ownership. But analysts have said getting the Chinese government to loosen control over its SOEs is one of the hardest aspects of reform.

While he acknowledged the challenges facing the government, Mr Xiao denied speculation that many SOEs were resistant to reform. He said many wanted to improve their performances so that the firms can compete internationally.

"We are in the business of growing bigger and better," he said.

A version of this article appeared in the print edition of The Sunday Times on March 13, 2016, with the headline 'Beijing may merge three state-owned oil companies'. Print Edition | Subscribe