Cosco-China Shipping deal flags Beijing's global intent

Dragon boaters against the backdrop of a Cosco container ship. Cosco and China Shipping Group are merging, in a move showing China's intent to create huge companies whose economies of scale would let them compete aggressively for overseas deals.
Dragon boaters against the backdrop of a Cosco container ship. Cosco and China Shipping Group are merging, in a move showing China's intent to create huge companies whose economies of scale would let them compete aggressively for overseas deals. PHOTO: REUTERS

Merged entity will be world's 4th-largest container line with 8.1% market share

BEIJING • China yesterday announced plans to reorganise two major shipping groups with a combined revenue of more than US$40 billion (S$56 billion), paving the way for the creation of one of the world's largest container lines and demonstrating the country's intent to create national champions that are globally competitive.

China Ocean Shipping Group Co (Cosco) and China Shipping Group will consolidate operations, the State Council's State-owned Assets Supervision and Administration Commission (SASAC) said in a statement on its website.

Terms of the restructuring were not announced.

China is overhauling inefficient state-run companies to bolster an economy headed for its slowest growth in 25 years. The plan aims to cut down sectors plagued by overcapacity while creating globally competitive firms in high-value sectors such as aerospace and advanced rail technology.

The combined entity would become the world's fourth-largest container shipper with a roughly 8.1 per cent market share.

That would still be far behind AP Moeller-Maersk, Mediterranean Shipping and CMA CGM.

France's CMA CGM, which earlier this week bought Singapore's Neptune Orient Lines, would retain its third spot with 11.5 per cent market share.

At least eight listed units of China Shipping Group and Cosco suspended trading in Hong Kong and Shanghai, citing possible "major transactions" by the parent companies.

Yesterday's shipping deal follows the merger in May of CSR Corp and China CNR Corp to create CRRC Corp, a train equipment maker that dwarfs foreign rivals Siemens and Alstom.

That step signalled China's intent to create huge companies whose economies of scale would allow them to compete more aggressively for overseas deals.

Earlier this week, China Minmetals, the country's biggest metals trader, agreed to buy China Metallurgical Group, a government- owned engineering and mining group. SASAC is setting up a state-owned fund to absorb bad debt in the mining sector, people familiar with the issue said.

Combining operations could help the shipping companies enlarge their presence and improve bargaining power, but would not immediately address the overcapacity facing the industry.

Premier Li Keqiang last week said the government would spend the next two years eliminating overcapacity, with long-term money-losing firms going "under the knife".

"By the end of 2017, a significant drop in losses is to be expected for enterprises whose losses are incurred from operations," SASAC said in its statement.

 SASAC pledged to "close, suspend, combine, divert, peel off and reorganise" loss-making enterprises in industries suffering from overcapacity and which cannot meet state standards for energy consumption, environmental protection, quality and safety.

Enterprises should leave the market through asset reorganisation, transfer of property rights, closure or bankruptcy if they suffer three consecutive years of losses and "their business is not in line with the direction of structural adjustment", it added.

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A version of this article appeared in the print edition of The Straits Times on December 12, 2015, with the headline 'Cosco-China Shipping deal flags Beijing's global intent'. Print Edition | Subscribe