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UPDATED: August 21, 2014 NO. 8 FEBRUARY 21, 2013
Fostering Mega-Sized Industries
The government plans to reorganize nine key industries, but what role should the market play?
By Lan Xinzhen

The future

The auto industry will face little difficulty reorganizing. In 2012 the top 10 auto makers in China controlled 87.3 percent of market share. Of them, SAIC Motor Corp. Ltd., Dongfeng Motor Corp. and FAW Group have annual sales of more than 2 million vehicles. It will be easy for the industry to realize the goal of fostering three to five large automakers and increase the concentration ratio of the top 10 auto makers to 90 percent by 2015.

In the cement industry, all the influential companies are listed ones. They have been reorganizing other cement producers in recent years. The Central Government has been controlling enterprises with high pollution and high energy consumption, so there are no new cement projects under construction in China. Therefore future expansion of corporate scale will rely on mergers and reorganization inside the industry, and these listed companies will further enhance their steps of reorganization.

The shipbuilding industry can also realize the goal of reorganization, but the sound development of the industry may be damaged. Shipbuilding industries are facing serious overcapacity worldwide. Government-forced trans-regional and trans-industrial mergers will only postpone the bankruptcy of some enterprises.

The concentration of the electrolytic aluminum industry will be further increased, benefiting three types of enterprises: industrial leaders with a central government background; national or regional leaders seeking integration of coal, aluminum and electricity production; and enterprises with advantages in obtaining overseas resources.

Most rare earth enterprises are located in north China's Inner Mongolia Autonomous Region and south China's Jiangxi and Fujian provinces. In north China, mining rights are controlled by several large enterprises and the industry is mature, therefore reorganization won't be difficult. But in south China, mining rights are scattered, making it difficult to reorganize. Mergers and reorganization in the south will mainly be led by large regional enterprises.

The electronic information industry will face difficulty reorganizing. Industrial analysts think that with large enterprises such as Huawei, ZTE, Lenovo, Haier and Digital China, it won't be hard to have five to eight big mainstay enterprises whose annual sales revenues surpass 100 billion yuan ($15.9 billion) by 2015. However, it won't be easy to foster any enterprise with annual sales revenue of more than 500 billion yuan ($79.49 billion).

In the agricultural sector, because of low market concentration, some industries, such as seeds, feeding stuff and aquatic breeding, may be a major target for reorganization, but the results are hard to predict.

"Some reorganization activities cannot be guided or compelled by the government, and the market shall be the deciding factor," said Wang Yong, an analyst with China Securities Co. Ltd.

Reorganization Targets

- Automobile By 2015, the concentration ratio of the top 10 automakers will rise to 90 percent, with three to five large players dominating the market.

- Iron and steel By 2015, the concentration ratio of top 10 iron and steel makers will be 60 percent, with three to five groups being dominant together with six to seven groups with regional market competitiveness.

- Cement By 2015, the concentration ratio of the top 10 cement producers will reach 35 percent, and three to four building materials groups will produce 100 million tons of cement and become internationally competitive.

- Shipbuilding By 2015, the top 10 shipbuilding enterprises will comprise 70 percent of the country's shipbuilding output and at least five of them will rank among the world's top 10 shipbuilders.

- Electrolytic aluminum By 2015, several electrolytic aluminum groups with international reach will be fostered, and the top 10 enterprises will contribute 90 percent of the country's total output.

- Rare earth The number of rare earth firms will be slashed through mergers and a few large companies will dominate production.

- Electronic information By 2015, five to eight large mainstay companies whose annual sales revenues surpass 100 billion yuan ($15.9 billion) will be established, and large enterprises with annual sales revenue of more than 500 billion yuan ($79.49 billion) should be nurtured.

- Pharmaceutical By 2015 the sales revenue of the top 100 enterprises will account for more than 50 percent of the industry's total, and the top 20 enterprises in sales of essential medicine will control 80 percent of the market share. The industry will primarily realize scale and intensive production for essential medicines.

- Agriculture The government supports leading enterprises to form large groups via reorganization, mergers and share holding.

Email us at: lanxinzhen@bjreview.com

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