China shares shook off weak economic data, surging nearly 5 per cent yesterday after media reports that Beijing will accelerate the shake-up of its stumbling state-owned enterprises (SOEs), which could include the merger of two shipping giants.
China's State Council approved a a long-awaited blueprint to overhaul the country's inefficient SOEs, pushing them to become profitable, the South China Morning Post (SCMP) reported last Saturday, citing sources close to the matter. The report described the plan as "Singapore-inspired".
It would create two companies similar to Singapore investment company Temasek Holdings in an effort to separate the government from day-to-day business decisions. China's State-owned Assets Supervision and Administration Commission will no longer directly intervene in the running of most SOEs, the paper said.
Then yesterday, Bloomberg News reported that Beijing may merge China Ocean Shipping Group, known as Cosco, the largest shipping company in the country by fleet size, with China Shipping Group, citing unnamed people familiar with the matter. If not a full merger, the government could instead combine some of their businesses, the report added.
Several arms of the two giants halted trading in their shares pending an announcement yesterday, in both Shanghai and Shenzhen, as well as in Hong Kong.
The news added fuel to the speculative fire that China is planning to embark on what the SCMP called the biggest plan of its kind in more than a decade.
While the reports are speculative at this point, they sent China stocks rallying for their biggest gain in a month. The benchmark Shanghai Composite Index jumped 4.9 per cent to 3,928.42 at the close yesterday, led by state-owned industrial, energy and telecom companies. China Shipbuilding Industry Co, China Coal Energy Co and China United Network Communications all surged by the 10 per cent daily limit. The Shenzhen Composite Index, which tracks stocks on China's second exchange, jumped 4.49 per cent to 2,274.84.
The reports also gave a lift to some markets in Asia with Tokyo stocks paring back earlier losses to close up 0.4 per cent and Sydney adding 0.6 per cent. But Bangkok dropped 0.6 per cent and Jakarta declined 0.5 per cent, weighed down by the bullish US dollar and crumbling commodity prices. Singapore's financial markets were closed for the National Day holiday.
In Malaysia, the ringgit weakened 0.2 per cent to another 17-year low and stocks slid 1.7 per cent to their lowest close in more than two years as investors pulled funds amid concern about the political scandal involving Prime Minister Najib Razak and the country's worsening economic outlook.
China has already merged its top two train makers - China CNR Corp and CSR Corp - which are also state-owned, into the single conglomerate CRRC Corp.
The move, announced last December, aims to prevent competition between the two as China vies for rail contracts overseas against industry giants such as Germany's Siemens and Canada's Bombardier.
The official Xinhua news agency reported in April that China was considering merging scores of its biggest SOEs to create around 40 national champions from the existing 111. Total revenue from national SOEs dropped 7.1 per cent year on year to 13.21 trillion yuan (S$2.94 trillion) in the first half of this year.
Weekend news of another monthly decline in Chinese exports - its biggest fall in four months - and a collapse in producer prices likely contributed to yesterday's China stock rally - presumably on hopes of further monetary stimulus from its central bank, analysts said.
But they said it was not clear how sustainable China's market gains would be, with many traders still nervous with the Shanghai Composite having plunged around 30 per cent from its mid-June peak, after surging more than 150 per cent in 12 months.
Reuters meanwhile reported yesterday that Beijing has begun looking for a replacement for the country's top securities regulator after his handling of China's boom-and-bust market.
It quoted informed sources as saying that potential candidates have been approached to succeed Mr Xiao Gang as chairman of the China Securities Regulatory Commission, and Communist Party elders will discuss the matter soon.