China's state construction giants to merge

Workers rest outside a construction site in Beijing's central business district. China's state construction giants are set to merge.
Workers rest outside a construction site in Beijing's central business district. China's state construction giants are set to merge. PHOTO: REUTERS

SHANGHAI (Reuters) - China National Building Materials Group Corp (CNBM) will take over smaller rival China National Materials Corp (Sinoma), after an agreement between the two companies was approved by the government, the country's state assets regulator said.

The deal is part of an ambitious plan by China under president Xi Jinping's leadership to revamp its lumbering and debt-ridden state sector, with the goal of creating globally competitive multinationals through mergers, asset swaps and sweeping management reforms.

According to a notice by the State-owned Assets Supervision and Administration Commission (SASAC) on Monday (Aug 22), the CNBM deal was given the go-ahead by the State Council, China's cabinet.

China's state firms made profits of 1.13 trillion yuan (S$229.47 billion) in the first half of the year, down 8.5 per cent on the year, with total liabilities up 17.8 per cent to 83.55 trillion yuan, according to the Ministry of Finance.

Amid concerns about plunging profits, soaring debt and chronic inefficiency, China's reform programme is aimed at eliminating duplication, waste and "cut-throat competition" between firms with nearly identical business structures.

CNBM, already the country's biggest construction materials producer, will be renamed the China Construction Materials Group. Sinoma's listed vehicle, China National Materials Co. Ltd , will become a subsidiary of the new merged entity, Sinoma said in a statement to the Hong Kong stock exchange.

The new group will have total assets of more than 500 billion yuan, China's Securities Times newspaper reported on Tuesday (Aug 23).

CNBM has been struggling with industrial overcapacity, plunging cement prices and a downturn in the construction sector. Its listed vehicle, the China National Building Material Co Ltd, warned earlier this month that its profits for the first half "will decrease very substantially".

SASAC is currently responsible for 104 enterprises in sectors ranging from energy to telecommunications. The number is down from 111 at the start of the year, and it could eventually fall to just 40, according to state media reports.

Last year, the China Power Investment Group, one of China's biggest state power generators, began merger procedures with the State Nuclear Power Technology Corporation, a reactor designer. Two regional railway manufacturers were also merged to form the CRRC Corporation.

And Baoshan Iron and Steel Group and the Wuhan Iron and Steel Group, two of China's biggest steel producers, are drawing up plans to restructure together.