Phoenix TV:

You mentioned just now the reorganization of central SOEs. What do you think is the biggest challenge in advancing the reform? Will the number of corporate reorganizations peak in the second half of this year?

Shen Ying:

SASAC has paid close attention to inter-enterprise reorganization and integration regard to the central SOEs since its establishment. Under current circumstances, reorganization and integration is not only an important initiative to adapt to and guide the economic "new normal", but also a normal operational move by enterprises in a market economy. In pursuing reorganization, we focus on whether we can achieve the desired results. In recent years, the central SOEs mainly adopted the following three approaches for their mergers and reorganization.

The first approach is reorganizing two equally-sized big enterprises in the same industry. Such merger and reorganization is intended to reduce overlapping investment and construction and lower operational costs. Cases in point are the merger of COSCO and China Shipping, Wusteel and Baosteel, and CNR and CSR.

The merger of COSCO and China Shipping to become China COSCO Shipping has produced obvious positive results. The new entity reported a profit of over 10 billion yuan in the first six months of this year, representing a significant rise from the before-merger figures. The merger of Baosteel and Wusteel into Baowu Steel has also been successful as the two are now synergizing their industrial strength and the supply of 180 types of products and services on their respective business portfolios. Such synergy will help avoid repetitive industrial investment, which is usually a common issue. In the first half of this year, Baowu Steel reported a profit of 8.7 billion yuan, wiping out losses from the same period of last year.

The second approach is incorporating one enterprise into another, as exemplified by the incorporation of Sinotrans & CSC Holdings into China Merchants Group. The two overlapped in part of their shipping business, and their deal has increased their shipping capacity, optimized their industrial layout and therefore brought greater benefits.

The third approach is reorganizing upstream and downstream enterprises to form an industrial chain to improve the industrial layout and jointly resist the risk of market fluctuations. One instance is the reorganization of two enterprises in supply of raw materials and processing respectively. Generally speaking, the positive effects of reorganization are gradually showing up, and are expected to be greater in the future.

As for the challenges emerging in the process, I take integration of corporate cultures as one of the biggest. Such cultural integration is an important guarantee for the alignment of corporate strategies.

Another big challenge is how to deal with the problems caused by the inevitable stripping of low-end businesses by the involved companies as they seek higher-end business. Such problems include the resettling of sidelined employees, disposal of assets and debt restructuring.

For example, Baowu Steel has to take care of the large number of sidelined employees in the process of stripping out some low-end productivity. Last year, Wuhan Iron and Steel carried out meticulous work to ensure the resettling of more than 30,000 employees as it cut overcapacity. Such work determines to a large extent the effects of the reorganization.

Therefore, reorganization of central SOEs in recent years is not simply a merger, but is more about the post-merger integration. Generally speaking, the process is smooth and achieves the desired results. Thank you!

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