According to Bloomberg, citing sources familiar with the matter, China plans to merge Baosteel Group and Wuhan Iron and Steel Group to create the Southern Steel Group, and also plans to merge Shougang Group and Hebei Iron and Steel Group to form the Northern Steel Group. The plan has not yet been finalized and remains subject to change. Specifically, the steel assets of Baosteel and Wuhan Iron and Steel will be transferred into Baosteel’s entity and become Southern Steel Co., Ltd., a subsidiary of the Southern Steel Group; while the non-steel assets of the two companies will be transferred into Wuhan Iron and Steel’s entity and become Southern Steel Industrial Co., Ltd., also a subsidiary of the Southern Steel Group.

Last Tuesday ( 7 Moon 26 On [date], the State Council issued guidelines on the structural adjustment and restructuring of central enterprises, calling for the promotion of strong alliances, the concentration of resources to create synergies, the reduction of disorderly competition and homogeneous operations, and the effective resolution of overcapacity in related industries.

The opinion points out that a mechanism should be established—characterized by both the entry and exit of state-owned capital and its rational flow—through such measures as mergers and restructuring, innovative cooperation, phasing out outdated production capacity, resolving excess capacity, and disposing of inefficient and ineffective assets. It outlines a clear roadmap for the restructuring of central enterprises as follows:

Three Recombination and Integration Modes:

( 1 ) Strong alliances: Reduce disorderly competition and homogeneous operations, and resolve overcapacity; build competitive advantages across the entire industry chain.

( 2 ) Specialized integration: Resources are concentrated on leading enterprises and core businesses; central state-owned enterprises establish specialized platforms with their own capital;

( 3 ) Internal resource integration within enterprises: Leveraging the advantages of the capital market; adjusting the governance and control system.

Key areas:

( 1 The “Going Global” strategy, coupled with the concentrated allocation of resources to create synergies, will help reduce disorderly competition and homogeneous operations, and address overcapacity in related industries—including equipment manufacturing, construction engineering, power generation, steel, nonferrous metals, shipping, building materials, tourism, and aviation services.

( 2 ) Build competitive advantages across the entire industrial chain and better leverage synergies—coal, power, and metallurgy;

( 3 Jointly fund the establishment of a specialized joint-stock platform covering communications, power, automotive, new materials, new energy, oil and gas pipelines, offshore engineering equipment, air cargo, and other sectors.

As previously reported by Wall Street Insights, the latest expanded list of pilot programs for the “Four Reforms” among central enterprises now includes the following state-owned enterprises:

Pilot programs for state-owned capital investment and operation companies are ongoing, with COFCO Group and China National Investment Corporation continuing to deepen their pilot efforts, and will gradually... 21 These rights are vested in or granted to enterprises. On this basis, we have selected Chengtong Group and China National New Energy Corporation to pilot the operation of state-owned capital companies, as well as Shenhua Group, Baosteel, Wuhan Iron and Steel, China Minmetals, China Merchants Group, China Communications Construction Company, and Poly Group, among others. 7 Several enterprises are piloting the establishment of state-owned capital investment companies.

Pilot implementation of the board of directors’ powers, involving China Energy Conservation, China National Building Materials Group, Sinopharm Group, and Xinjingji Hua Group, among others. 4 The home pilot program is being further deepened.

Pilot programs for mergers and reorganizations of central enterprises have selected China National Building Materials Group and Sinoma, COSCO Group and China Shipping, and State Power Investment Corporation and China National Nuclear Corporation, among others. 3 Pilot programs have been launched for reorganized enterprises.

The pilot program for information disclosure by central enterprises has selected COFCO Group, China Construction, and others. 2 Several enterprises have launched pilot programs. The pilot program for separating enterprise-run social services and addressing legacy issues has been implemented in selected provinces.

In fact, the sectors of “metallurgy,” “steel,” “coal,” and “equipment manufacturing” have gradually, one after another, entered the phase of mergers and restructuring.

Steel: This year 6 Baosteel Group and Wugang Group have already begun planning a strategic restructuring.

Metallurgy: 2015 Year 12 China Minmetals and MCC were the first to implement a strategic restructuring, with MCC being fully merged into China Minmetals—this move was aimed at creating a world-class metals and mining conglomerate through a “strong-strong alliance.”

This year 7 This month, COFCO Group and Sinofert Group officially launched a strategic restructuring, with Sinofert fully integrated into COFCO and becoming a wholly-owned subsidiary of COFCO. The pilot reform plan for COFCO State-owned Capital Investment Company was also announced.

Shipping: The merger and restructuring of China Ocean Shipping (COSCO) with China Shipping, as well as that of Nan Guang Group with Zhuhai Zhenrong, are currently underway.