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Consolidation will take place if the newbuilding market does not improve, say market observers, with leaders from CSIC and CSSC ‘switching’ roles to prepare for restructuring
China State Shipbuilding Co (CSSC) and China Shipbuilding Industry Corp (CSIC) are eyeing a potential merger.

Talk is rife in the local market that the two state-owned conglomerates, which account for more than half the nation’s shipbuilding output, will join forces if the dismal market continues.

In what is seen as preparation for the merger, Beijing is transferring CSSC chairman Hu Wenming to northern entity CSIC, leaving the latter’s vice-president, Dong Qiang, to take charge of the southern group. CSIC’s current president, Li Changyin, is due to retire.

One source familiar with the two groups plays down talk of an imminent merger, saying the central government is behind the exchange of leaders.

“It is common to see government officials switching roles,” said the source. “After all, CSSC and CSIC are state-owned entities.”

Other market observers, however, believe the switch is to allow the men to familiarise themselves with running yards within the other group’s sphere as part of a run-up to a merger.

Hu took over the chairmanship of CSSC three years ago and has made some aggressive changes. He orchestrated a shake-up by merging some yards and Hudong-Zhonghua Shipbuilding (Group) taking over management of Shanghai Shipyard.

There was also an equity swap involving over 51% of the shares in Shanghai Jiangnan Changxing Heavy Industry. Hong Kong-listed Guangzhou Shipyard International (GSI) absorbed Guangzhou Longxue Shipbuilding, Huangpu Wenchong Shipbuilding and Yangzhhou Kejin Shipyard.

Economies of scale

Hu’s reasoning behind the changes was so stronger yards could help the weaker ones, while centralising activities in pursuit of economies of scale. His reorganisation saw the number of facilities controlled by CSSC reduced from 14 to seven. He also harbours ambitions to take over ailing yards in China, such as STX Dalian Shipbuilding.

As for Dong, he is well regarded in the industry. He began his career at Dalian Shipyard and has headed up CSIC for more than a decade. Some describe him as a shipbuilding man with rich marketing experience.

CSIC controls seven yards — Dalian Shipyard, Dalian Shipbuilding Industry Co (DSIC), Tianjin Xingang Shipbuilding, Bohai Shipbuilding, Beihai Shipbuilding, Shanhaiguan Shipbuilding and Wuchang Shipyard.

Yards under CSSC and CSIC are included on China’s “white yards” list, meaning they are deemed worthy of official support.

Although some market sources think a merger of CSIC and CSSC will not take place overnight, they add that if the industry continues in its current weak state, such consolidation is inevitable.

“The merger of CSSC and CSIC may take two years to happen,” predicted one industry player.

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