China Merchants absorbs Sinotrans

The Chinese ‘State Owned Enterprise’ sector is not known for its transparency and in keeping with this it is not wholly clear why Sinotrans & CSC Holdings has been taken-over by China Merchants Holdings.

It was confirmed by the Chinese ‘Assets Supervision and Administration Commission’(SASAC) which published a short statement on its web-site stating that “Sinotrans & CSC will be wholly merged into China Merchants Holdings and it will no longer be directly supervised by Sasac” whilst the Chairman of China Merchants Group, Li Jianhong confirmed the move on the 31st December, commenting that Sinotrans was now “a wholly owned subsidiary enterprise” and that the “ strategic reorganization of two enterprises, will give full play to the strengths and synergies of both parties, to continue to enhance the competitiveness of enterprises, promote, influence and lay a solid foundation”.

Certainly Sinotrans is an important company in the logistics economy of China. Not only does it act as a holding company for a variety of different shipping, shipbuilding, logistics property development and warehousing operations but it also operates China’s most important domestic forwarding business, for example, controlling much of the barge transport on the Yangtze

China Merchants also has a huge portfolio of logistics businesses with the logistics arm of the company including shipping lines and container terminals. It is one of the largest owners of logistics assets in China with its Hong Kong listed business alone having a revenue of 93.275 billion yuan (US$14.2bn) in 2014.

Yet it is unclear what the rationale for combing these businesses is. Some parts of Sinotrans may be suffering, with ship building in China particularly distressed, however with no public accounts available it is not possible to know. Parts of China Merchants continue to be successful, with its International subsidiary announcing a continued increase in profits late last year, however whether China Merchants Holdings will refinance or reorganise Sinotrans is unknown.

The takeover does follow on from the earlier merging of the container lines COSCO and China Shipping Container Lines. Yet the rationale for this was the wider consolidation in the container shipping sector as well as the rougher performance that both the shipping companies had experienced.

The temptation is to view the latest moves as a reflection of the slower growth and the higher burden of debt that China is suffering at present. It may be the case that there is political pressure to restructure organisations that previously were simply focussed on growth. However, the opaque nature of China does not yet permit us to be certain about this.