China’s central government is considering consolidating its three largest nuclear companies. The move closely follows the impending merger of the country’s two biggest train manufacturers. Beijing has evidently decided to go big in a bid to dominate export markets.
Early this month, Reuters reported that the State-Owned Assets Supervision and Administration Commission, better known as SASAC, was studying the consolidation of China National Nuclear Corp. and China General Nuclear Power Corp. “The merger between CGN and CNNC is inevitable,” said Xu Lianyi, a former government official, to the news service.
The official China Daily, going one step further, this month reported that Beijing was thinking about merging the country’s three largest nuclear enterprises. The third firm, according to the paper, was State Nuclear Power Technology Corp.
Not everyone agrees with Xu Lianyi, who has ongoing ties to State Nuclear Power Technology. For instance, Wu Zongxin of Tsinghua University in Beijing, speaking to the China Daily, believes there is a “slim chance” of such a merger at this time. Lu Jinyong of Beijing’s University of International Business and Economics also is a skeptic. “The three companies were intentionally put into competition for markets,” the paper paraphrases Lu as saying, “so it would be difficult to merge them into one, given their different agendas and backgrounds.”
Lu is correct that at one time progressive-minded technocrats in the Chinese capital wanted to break up monopolies so that state firms would vie with one another, but there has been a noticeable change in thinking. “Officials hope that such a move would end intense competition and boost technology exports,” China Daily reports, referring to the contemplated merger of the three nuclear companies.
Chinese technocrats had the same reason in mind when they planned the merger of China CNR Corp. and CSR Corp., China two largest train makers. “Sources close to the State Assets Supervision and Administration Commission said that the move was intended to create a single strong player, because vicious competition has undermined the government’s efforts to boost exports of high-speed railway technology,” China Daily reported.
The State Council, which ordered the consolidation in September, was reportedly upset that the two state firms vigorously competed against each other for a contract to build 284 subway cars for the Massachusetts Bay Transportation Authority. Ultimately, CNR submitted the winning bid of $566.6 million. “The price offered by CNR was about half of the highest bid and a quarter lower than the second lowest bid,” said Lawrence Li of UOB Kay Hian to the South China Morning Post.
The rail merger, as can be seen from the proposed nuclear consolidation, is not just a one-off reaction to the bargain Boston riders will soon enjoy. “It will become China’s long-term strategy,” a source, referring to the CNR-CSR deal, told the Shanghai Securities News. “Actually, it could become a model for other State-owned enterprises.” Xie Jilong, CNR’s board secretary, confirms the combination was initiated by Beijing, not the two firms.
Since the end of the 1990s, analysts have been hailing the breakup of Mao Zedong’s gigantic state monopolies. CNR and CSR, for instance, were split off from the same enterprise, China National Railway Locomotive and Rolling Stock Industry Corp., at the turn of the century.
Now, however, Beijing is beginning to reverse that process. This reversal, more than anything, indicates that regressive elements are at work in Beijing political circles. Because Maoist-style economics are evidently back in favor, it appears that China will not embark on much of the promised economic restructuring, at least of the progressive kind.
Chinese leaders may have the power to repeat history and ruin their own economy, but they don’t have the right to disadvantage foreigners. Beijing’s monopolist moves have two important implications for outsiders.
First, Beijing’s application of its 2008 Anti-Monopoly Law to foreign business looks even more discriminatory than it did last year. China’s officials obviously are not interested in competition, as they maintained when challenged on this issue. The law is a club, selectively applied to multinationals, and Beijing’s enforcement of it is undoubtedly a violation of its World Trade Organization obligations to provide national treatment.
Second, the merger of Chinese competitors will allow them to raise bids in foreign markets. CNR and CSR, for instance, are currently participating in California’s high-speed rail project, and they will certainly not bid against each other for additional phases.
Some may doubt that Beijing will be able to merge its nuclear concerns, but there are other industries where large state players can be joined together.
Chinese technocrats have often tried to make the small big. For decades, they have been consolidating industries plagued by both overcapacity and a multitude of enterprises, especially cement, steel, aluminum, and shipbuilding. What’s new is that they are now consolidating sectors where there are already only a few competitors, all of them state-owned. And now Beijing is not shy about openly declaring that it is doing so to bolster its competitive position overseas. The word for that is “predatory.”
Chinese leaders evidently think they have the power to set prices not just at home but elsewhere as well. That seems unrealistic in most industries, but they have grand ambitions these days.
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