The initiative, dubbed "Made in China 2025", focuses on promoting key sectors, led by railwaysand nuclear power plant construction, in offshore markets, in Beijing's latest move to createleading international giants.
"Without size and strength internationalization is fairly difficult," said Li Dongsheng, chiefexecutive of Chinese mobile telephone and television set giant TCL Corp, explaining therationale behind consolidation.
A restructuring plan, expected to be released before the end of March, will address issuesranging from the establishment of asset management companies to oversee State shareholding,to the introduction of non-State investment and performance-based compensation programs atgovernment-controlled firms, experts say.
Improving the efficiency at State-owned enterprises (SOEs), which dominate crucial sectors ofChina's economy, is critical as the country struggles to maintain a growth it has delivered for twodecades.
Premier Li Keqiang outlined the "2025" strategy, which also includes promoting machinery andcommunications equipment, automobiles, aircraft and electronics, in his address to the annualgathering of China's parliament, which concludes later this week.
National champions
China has been experimenting with the creation of large, globally-competitive groups since the15th Party Congress in 1997. While mergers in the nuclear and railway industry anchor thecurrent round of consolidation, Beijing may further shake-up other top manufacturers, as it seeksto create more national champions and boost exports of high-end equipment.
On the same day last week that Li introduced the 2025 plan, the country's state assets regulatorapproved the tie-up of leading train makers China CNR Corp Ltd and China CSR Corp Ltd, afterthe two companies announced a merger plan in December.
In February, China Power Investment Corp and State Nuclear Power Technology Corp (SNPTC)announced they were exploring a merger, to create a group which analysts estimate would havetotal assets of more than $96 billion.
"Consolidation for China must be seen from a global perspective," said Zhu Jianfang, chiefeconomist at CITIC Securities in Beijing. "I believe there would be some more consolidation invarious industries."
Beijing is also likely to use mergers to create more champions in the shipbuilding, electronicsand construction sectors, industry experts say.
Market speculation
Anticipated state sector reform has triggered speculative demand for shares of listed units ofmajor SOEs that analysts say may face consolidation, as well as for shares of local SOEs likelyto benefit from potential restructuring.
Shares in China CNR Corp and CSR Corp both rose by 10 percent - the maximum allowed pertrading day - on March 5, hours before the companies announced that their merger had beenapproved by the State-owned Assets Supervision and Administration Commission (SASAC).
Shares of the listed units of China Power Investment have also soared.
Some industry leaders and analysts, nonetheless, are skeptical that mergers will create stronger,more globally-competitive State enterprises. They noted that the expansion of major SOEs in thepast decade was fueled by cheap loans and subsidies, and the growth came at the expense ofefficiencies.
Chinese oil and gas industry experts say the sector might undergo some asset restructuring, butthey shrugged off an overseas newspaper report last month that China would merge two of thecountry's largest State-owned oil groups, China National Petroleum Corp and Sinopec Group.
Such a merger would create a monopoly too big to manage and hurt Chinese consumers, theysay.
Wu Da, a portfolio manager at Beijing-based Changsheng Fund Management Co, said hiscompany has been actively searching for stocks likely to benefit from the current State sectorreform.
"That has become one of our top priorities," he said, adding that many local SOEs, like those inAnhui province and Shanghai, may receive asset injections from their parents or be listed.