China's efforts to streamline and restructure its State-owned enterprises gained further momentum on Wednesday after the State-Owned Assets Supervision and Administration Commission cleared the proposed merger of China Nuclear Engineering and Construction and China National Nuclear Corp.
The merger between CNEC, China's sole nuclear power engineering firm and major nuclear power producer CNNC, is expected to create an entity with combined assets of more than 620 billion yuan ($99 billion) and a workforce of almost 150,000, according to Reuters' calculations.
Industry experts said that the State-orchestrated marriage in the nation's vast power sector comes as no surprise, as Beijing has been trying to streamline the SOE sector since 2015 to make businesses more profitable with mergers, reductions and shutting down of zombie companies.
Joseph Jacobelli, a senior analyst of Asian utilities at Bloomberg Intelligence in Hong Kong, said he expects China's SOEs to see more mergers as the government overhauls the sector.
"The announced merger comes as no surprise and we can definitely expect more among other State-owned energy enterprises," said Jacobelli.
"It is a process that will be ongoing at least over the next two to three years, but the question is while the entities will be bigger, how will they be able to take advantage of synergies and reduce costs and become more efficient."
China's top coal miner Shenhua Group Corp Ltd merged with State-owned power generator China Guodian Corp last year, creating the world's largest energy conglomerate, China Energy Investment Corp, with total assets of 1.8 trillion yuan.
"Together with the merger of leading Chinese nuclear power companies China Power Investment Corp and State Nuclear Power Technology Corp, there have so far been two high profile mergers but we have seen little evidence of immediate benefits to their returns on investment, at least at the listed subsidiaries level," said Jacobelli.
"We perhaps may need to wait several years to see any benefits," he said.
The merger will see the number of enterprises administered by the central government reduced to 97 from 117 in 2012.
The State-owned Assets Supervision and Administration Commission has vowed to reduce the number of central SOEs to make them leaner and healthier.