A cement factory in Tangshan, Hebei province. (Photo/Xinhua)
China's National Development and Reform Commission, Ministry of Finance, Stated-owned Assets Supervision and Administration Commission, and other related government agencies are pushing for mergers and restructuring in eight major industries: steel, auto manufacturing, cement, machinery, electrolytic aluminum, rare earth, IT and electronics, and medicine. Amid a slowdown in economic growth, these eight industries are witnessing decline in profits to various extents due to low industrial concentration and overlapping investments.
Statistics from financial information provider Wind reveal that 829 listed firms in the eight sectors, which have published third-quarter reports, raked in profits totaling 98.5 billion yuan (US$15.8 billion), down 36.9% year-on-year in the first three quarters this year. 448 of them, or 54%, reported declining profits and 86 reported losses.
Yang Delong, chief strategist of China Southern Asset Management, remarked that steel and cement are typically cyclical industries featuring diversified capacity, low industrial concentration, acute competition and serious overcapacity. Enterprises expand vigorously during the good times at a scale far exceeding market demand. Once the economy turns south, those industries suffer high inventory levels, driving down profits.
The 829 listed companies were laden with outstanding inventory worth 922.1 billion yuan (US$147.7 billion) as of mid-2012, according to Wind.
Wind statistics show that as of Oct. 30, there were 898 listed firms in the eight industries, accounting for 36% of the companies listed on the A-share market; they boasted total market value of 4.44 trillion yuan (US$711 billion).
Central-level state enterprises will play a critical role in consolidation and restructuring in the eight industries.
The State-owned Assets Supervision and Administration Commission is orchestrating mergers and restructuring in the eight sectors, especially for central-level state enterprises.
These state enterprises will play a leading role in enhancing the industrial concentration since they are the leading enterprises in many traditional lines such as steel, cement and auto manufacturing. They include Baosteel, Wuhan Iron and Steel, China National Building Materials Group, Beijing Automobile Works, FAW, SAIC Group, Aluminum Corp of China and China Minmetals.