Chinese state-owned conglomerates China Electronics Corp (CEC) and the China Great Wall Computer Group Co could soon be merged with each other as part of the government's bold plan to restructure state-owned enterprises (SOEs).

The merger would create a company with assets totalling more than 50 billion yuan (US$6.17 billion), within China's electronics industry.

A plan to merge the two electronics giants has been submitted to the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council, CEC Vice-President Liu Xuehong said in a telephone interview with China Daily yesterday.

Liu expects that the merger will be formally approved by the SASAC, sometime in the near future.

CEC, with total assets of 39.6 billion yuan (US$4.88 billion) in 2003, manages 16 wholly-funded subsidiaries, 30 shareholding companies, two overseas operations and six listed companies, including Amoi Electronics and silicon chip manufacturer Shanghai Huahong Corp.

The Great Wall Group, with assets totalling 12.2 billion yuan (US$1.50 billion), controls seven wholly-owned subsidiaries, 14 holding companies, four associated companies, and four listed companies, including the Hong Kong listed Great Wall Technology Co Ltd and the Shenzhen listed Great Wall Computer.

"We are currently assessing the assets of both CEC and the Great Wall Group," said Liu.

"The shareholding structure of the new company that will be created has yet to be defined."

CEC's annual sales hit 30.4 billion yuan (US$3.75 billion) last year, according to the company's vice-president.

The government is also studying the possibility of including the Panda Electronics Group Co Ltd in the merger between CEC and the Great Wall Group, Liu said.

The Panda Electronics Group is the parent company of Nanjing Panda Electronics Co Ltd, which is listed in both Shanghai and Hong Kong. Exact figures for the total assets of the Panda Electronics Group are not available. The company is currently remaining tight-lipped over the release of such information.

Annual sales for the Panda Electronics Group hit a staggering 26.3 billion yuan (US$3.24 billion) in 2003, according to the company's website.

Liu also denied speculation that CEC would be merged with China Putian Corp, also an electronics conglomerate, with total assets of 33.74 billion yuan (US$4.16 billion) in 2003.

The merger between CEC and the Great Wall Group highlights the government's push to reduce the number of large SOEs operating within major industries.

SASAC minister Li Rongrong has said the government aims to reduce the number of leading SOEs in each category of major industry to three, to keep the reigns on what is seen as increasingly damaging competition.

The government is also pushing large cash-strapped SOEs to become listed on overseas markets.

In a first step towards overseas listing, both CEC and Putian established a shareholding company in 2003. Those moves were welcomed by the SASAC.

Despite such restructuring, it seems as though the two giants have yet to make substantial progress regarding listing overseas.

Putian's Vice-President Tao Xiongqiang yesterday told China Daily that the company is still focusing on restructuring its sprawling network of businesses and would not be able to become listed overseas until the restructuring is completed.

As for CEC, Vice-President Liu said there is as yet no major progress in the company's overseas listing bid. CEC has been hankering to list in Hong Kong and New York.

A merger with Great Wall Group could potentially hold back CEC's overseas listing scheme, said an analyst at China Galaxy Securities, which served as the financial adviser to CEC on the overseas listing plan two years ago.

"Following the merger CEC would have to spend a long time focusing on asset restructuring before kick-starting the overseas listing plans," the analyst said.

It would also be difficult for CEC to woo overseas investors due to the intensifying competition in China's mobile phone market, the analyst added.

CEC has plans to spin off its best assets, most notably its mobile phone business, to assist in its push to get listed overseas. In 2003, CEC, together with its subsidiaries, sold more than 11 million mobile phones.

Currently, most domestic mobile phone makers are having a tough time as the market is becoming increasingly overcrowded.

(China Daily July 26, 2005)