China chemical merger to create group with $152bn sales

Shares in Sinochem International rose by their 10 per cent maximum daily limit on Thursday after the company’s parent, China’s largest chemical group, won approval to merge with its main domestic rival.

The State-owned Assets Supervision and Administration Commission, or Sasac, overseer of China’s central government-backed industrial groups, said on Wednesday it would create a new holding company to absorb Sinochem Group and China National Chemical Corp, also known as ChemChina.

The move, which has been in discussion for years and will create an industrial powerhouse with annual sales of more than Rmb1tn ($152bn), is the latest effort by Beijing to create state-backed champions to challenge international leaders.

“The merger could help [China’s chemical industry] better handle pressure from the domestic expansion by foreign industry giants,” said Shanghai-based Huachuang Securities in a report. “It will allow China to play a larger role in the global energy, chemical and agriculture industries.”

Sinochem and ChemChina began merger talks as early as 2017, when Beijing sought to consolidate centrally controlled state groups to make them more competitive.

The negotiations came as global chemical groups, led by BASF and Dow Chemical, went on a buying spree to improve efficiency.

“The merger of Sinochem and ChemChina follows the global trend that values economies of scale,” said a researcher at CCID group, a think-tank under China’s Ministry of Industry and Information Technology.

But while the newly created powerhouse will gain economies of scale, analysts question whether the combination of two groups with very different growth models will create synergy.

An analyst at a research centre under Sasac said ChemChina’s focus on traditional chemicals and SinoChem’s strength in foreign trade suggested it might take time for the two groups to find “common ground”.

“It is easy for Sinochem and ChemChina to merge since they report to the same boss [the government],” said the analyst. “The real challenge is to make them work more efficiently together.”

Additional reporting by Sherry Fei Ju