Business / Economy

Tourism mega-merger latest stride in SOE reform

(Xinhua) Updated: 2016-07-13 10:50

BEIJING - A mega-merger in China's tourism sector marks the latest step forward in the country's drive to improve the efficiency of its bloated State-owned enterprises (SOEs).

After approval by the State Council, China International Travel Service Group Corporation is now a wholly-owned subsidiary of the China National Travel Service (HK) Group Corporation, the State-owned Assets Supervision and Administration Commission said in a statement late on Monday.

The marriage of the two former competitors will allow for higher SOE efficiency, larger market share and better profit performance of State-owned assets, said Shen Meng, executive director of Chanson Capital, a boutique investment bank.

The new entity, which will register revenues of at least 52 billion yuan ($7.8 billion) and assets of at least 116 billion yuan, will become "one of the largest travel service companies in China, offering diversified products and services," said Lu Chenyi, a Moody's vice-president and senior analyst.

The merger will improve the efficiency of the two corporations through business synergies, enhance their competitiveness in terms of scale and global reach in the industry and increase cost savings through shared resources, Lu said.

China is overhauling its SOEs, encouraging mergers and acquisitions between some of its biggest conglomerates while shutting loss-making ones.

The country has seen a mega-merger between its two largest train makers, China CNR Corp Ltd. and China CSR Corp Ltd., approved a merger between China Metallurgical Group and China Minmetals Corporation, both of which are Fortune 500 companies, and created the world's fourth-largest container shipper through the merger of China Ocean Shipping Group and China Shipping (Group) Company.

China's hundreds of thousands of SOEs play a pivotal role in bolstering the economy and providing employment, with total assets worth about 125 trillion yuan as of the end of May.

However, an economic slowdown, which trimmed the country's GDP growth to 6.7 percent in the first quarter, has bitten into SOEs' profitability and left many struggling to keep afloat.

The combined profits of these state firms saw a decline of 9.6 percent year on year in the first five months, despite warming signs in the broader economy.

Shen said China's SOE reform has entered a crucial stage and more SOE mergers and acquisitions may be expected in the second half of the year.

The next stage of SOE reform will feature overcapacity reduction, optimal relocation of similar resources and specialized operation, said Li Jin, chief analyst with the China Enterprise Research Institute.

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