China approves nuclear merger in Belt & Road push

Beijing is pushing forward with its SOE reforms by combining two state-owned nuclear power producers to improve efficiency and enhance competitiveness in the global market.
CNNC completed the third phase of Pakistan's Chashma nuclear project in 2016.
CNNC completed the third phase of Pakistan's Chashma nuclear project in 2016.

China’s State Council approved the long-awaited merger between two state-owned nuclear powerhouses on Wednesday, underscoring Beijing’s ambitions to overhaul bloated state-owned enterprises (SOE) for better efficiency and more sustainable growth.

In a brief message posted on its official website, the State-owned Assets Supervision and Administration Commission (SASAC) said it had approved the consolidation of China National Nuclear Corporation (CNNC) and China Nuclear Engineering & Construction Corporation (CNEC).

CNEC, a smaller player which engages in engineering and construction of nuclear facilities, will be incorporated into CNNC, a mega corporation that oversees the country’s civilian and military nuclear programmes. The merger will be a direct transfer of assets and does not involve any funds.

The move is expected to bolster China's efforts to export its nuclear know-how internationally, including in countries covered by President Xi Jinping's Belt and Road Initiative. It has already completed one project in Pakistan, a key Belt and Road partner for China.

The merger will strengthen the duopoly in China’s nuclear market by putting over Rmb600 billion ($95.3 billion) of assets under CNNC's management. Its asset size will be similar to its major peer China General Nuclear Power Group (CGN), which reported total assets of Rmb635 billion as of the end of last year.

The merger is literally a re-marriage between CNNC and CNEC, which were both established during the reorganisation of China National Nuclear Corporation Group in 1999.

Going abroad

In contrast to the strategy of streamlining SOEs to enhance competition in the 1990s, Beijing started consolidating state entities in recent years amid concerns about an oversupply in certain industries, as well as to avoid internal competition in overseas markets.

A typical example was the combination of state-owned train makers CSR and CNR in 2014. They were instructed to merge shortly after the two heavyweights found themselves embroiled in a dispute over supplying locomotives overseas.

In 2012 CSR and CNR entered into a nasty bidding war for a subway contract for Argentina. The two companies ended up in a cut-throat competition and fought for the contract with ever-lower prices. While most of the other foreign firms made a bid of over $1 billion, the contract was eventually offered to CSR for $514 million.

After the incident, China’s Ministry of Railways blatantly criticised the two firms for neglecting state interest.

More firepower

As CNNC and CNEC have never embroiled in any form of direct competition, the merger is seen as strengthening CNNC’s ability to secure overseas contracts.

Unlike its rival CGN which focuses on the domestic market, CNNC has been actively pursuing overseas projects in accordance with the Belt and Road initiative.

CNNC is the only Chinese nuclear firm that has engaged in the construction of nuclear plants aboard. It has so far engaged in three overseas nuclear projects, with the latest being the No.3 reactor in Pakistan’s Chashma nuclear power plant. The project was completed in October 2016.

The nuclear merger marks China’s fifth major SOE consolidation since 2014. Besides CSR-CNR, Beijing has orchestrated the merger of Baosteel and Wuhan Iron and Steel, the merger of China National Travel Service and China International Travel Service Group, as well as creating an energy powerhouse through combining Guodian and Shenhua last year.

Following the CNNC-CNEC merger, China will have 97 state-owned enterprises directly managed by SASAC. The State Council has said earlier it plans to reduce the number to 80.

¬ Haymarket Media Limited. All rights reserved.