China building state companies 'bigger' as party tightens grip
Mega-mergers forming business groups loyal to Beijing
Author: TETSUSHI TAKAHASHI,
Head of Nikkei's China Headquarters
BEIJING -- A wave of mergers among state enterprises is sweeping China as the Communist Party and its chief, Xi Jinping, strive to turn these entities into global behemoths.
A planned merger between state-owned coal heavyweight Shenhua Group and power utility China Guodian became the talk of the business world this month after a Guodian executive let the news slip Aug. 2 at a conference in Beijing. But whatever remarks were made soon vanished from the official record. "We cannot release the portion of the minutes containing the Guodian official's remarks, as per instructions from the higher-ups," the forum's sponsor said the next day.
A source close to the matter confirmed that "the statement is true" but speculated that "the official spoke without first clearing the matter with the party."
Both Shenhua and Guodian are among the 99 major state enterprises directly overseen by the State Council, commonly referred to as "central" enterprises. Authorities are working at a fever pitch to move their merger ahead. They have plenty to motivate them. The State Council and the Communist Party jointly issued guidance in 2015 on state enterprise reform, stating that China aimed to nurture top-class multinational companies and achieve major reforms by 2020, making state enterprises "stronger, better and bigger" -- a favorite phrase of party leaders.
The plan did not set numerical targets. But the idea seemed to be to consolidate central enterprises, which at the time numbered 110, into around 40 entities. And with three years left until the deadline, talk abounds of such potential mergers as one between automakers FAW Group and Dongfeng Motor Group -- a sign that the authorities are desperate.
Follow the leader
The 2015 guidance made clear that the party was taking a leading role in state enterprise reform. The guidelines "clarify the direction of and fundamental rules for reform, in light of repeated instructions from" Chinese President Xi in his capacity as the party's general secretary, a State Council official told a news conference shortly after the document went public.
Similar state enterprise reform guidance drawn up in late 2006 under Xi's immediate predecessor, Hu Jintao, sheds some light on exactly what the current leader's goals might be. The two documents share the fundamental principle of building massive business groups able to withstand global competition. But in the Hu era, the State Council took the definitive lead on the effort as the party hung back, careful not to overstep its bounds.
The approach ultimately backfired. Enterprises, seeking to protect their vested interests, worked to hinder mergers. Realignment efforts also pitted the interests of various party officials and retired party elders against one another. This both slowed progress on reform to a crawl and made it impossible for Hu to combat worsening corruption.