New Round of State-Owned Enterprise Reform Priorities Clarified, Expected to Generate New M&A Opportunities in A-Shares

Source: Securities Daily Author: Du Yumeng

This year’s “Government Work Report” states that we should “formulate and implement further plans to deepen state-owned assets and state-owned enterprise reforms, and promote the optimization and restructuring of the state-owned economy.”

Recently, Zhang Yuzhuo, Secretary of the Party Committee and Director of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council, said at the first “Minister’s Channel” during the Fourth Session of the 14th National People’s Congress, “During the 14th Five-Year Plan” period, the goal of further deepening reforms is to strengthen core functions, enhance core competitiveness, and make state-owned enterprises and capital stronger, better, and larger. There should be new breakthroughs in three areas, with the top priority being to achieve new progress in promoting the “Three Concentrations” of state-owned capital.

“Our goal is, after several years of effort, to change the current situation where the layout of the state-owned economy is long in line, widely distributed but lacking high-end sectors, and with many low-end sectors. We aim to concentrate the assets of central enterprises into 20 key industries out of the 97 major industries in the national economy, and to concentrate over 88% of the operating income of central enterprises into these 20 industries. This is to further strengthen the function of the state-owned economy in serving national strategies, serving the people, and enhancing the capacity for technological innovation,” said Zhang Yuzhuo.

According to information from SASAC, the next step is to establish and improve guidelines for the optimization and restructuring of the layout of the state-owned economy, improve main responsibility management, and guide state-owned capital to better implement the “Three Concentrations” requirements.

“Promoting the concentration of state-owned capital into key industries will help achieve a high degree of concentration of assets and operating income, forming a development pattern of ‘prominent main business, advantages gathering, innovation leading, and strong support’ in the state-owned economy,” said Zhou Lisha, researcher at the China Enterprise Reform and Development Research Association, in an interview with Securities Daily. She noted that in promoting the optimization and restructuring of the layout of the state-owned economy, the primary task is to precisely concentrate state-owned capital into three major areas, resolutely exit non-core and non-advantageous sectors, clean up inefficient and ineffective assets, and focus resources on core areas.

朱昌明, partner at Sunshine Times Law Firm and head of the State-owned Enterprise Mixed Ownership Reform Center, believes that around promoting the optimization and restructuring of the state-owned economy, SASAC has proposed two specific indicators, marking a proactive and large-scale “structural migration” of state-owned capital. This cannot rely solely on administrative allocation or the enterprise’s own growth cycle; more reliance is on “surgical” measures that serve to strengthen the strategic functions of the state and improve the core competitiveness of state-owned enterprises. Through strategic restructuring, professional integration, and high-quality mergers and acquisitions, enterprises can continuously expand high-quality development space. In this process, the capital market, as the main battlefield for the optimization and restructuring of the state-owned economy, will have great potential.

According to Tonghuashun iFinD, excluding failed transactions, from the beginning of this year to March 15, a total of 205 M&A events were initiated by state-controlled listed companies (controlled by SASAC or local SASACs) in the A-share market, covering fields such as aviation transportation, energy, and electronics.

朱昌明 stated that with the release of a new round of deepening reform plans for state-owned assets and enterprises, high-quality market-oriented mergers and acquisitions by state-owned enterprises are expected to become the norm: focusing on acquiring key technologies, core resources, high-end talents, or market channels, these enterprises will carry out more frequent and larger-scale market-oriented mergers and acquisitions of innovative small and medium-sized enterprises and tech “unicorns” to quickly penetrate and layout strategic emerging industries. Meanwhile, professional integration will become the “main theme,” including horizontal integration (ending homogeneous competition and redundant construction among central enterprises in the same field), vertical integration (restructuring along the industrial chain to create full-chain competitive advantages), and promoting “two non-two capital” enterprises to focus on main businesses or exit through market-based methods.

(Edited by: Wen Jing)

Keywords: State-owned enterprise reform