China to merge more state-owned enterprises by avoiding layoffs

State-owned firms have become plagued by overcapacity and inefficiency, but also provide jobs to millions of people and power a huge portion of the economy

China will combine more of its biggest state-owned enterprises as part of an ambitious plan to cut overcapacity and overhaul the $18 trillion sector but won't see the widespread layoffs that accompanied a similar overhaul in the 1990s, a senior regulator said.

Reform of China's state-owned enterprises must balance many interests, especially those of employees, Xiao Yaqing, the chairman of the State-Owned Assets Supervision and Administration Commission, told a briefing in Beijing. Big state-owned enterprises will be made stronger while duplication will be eliminated, he said.

Xiao's remarks highlighted the thin line that Chinese regulators must walk as they seek to implement President Xi Jinping's plan to slim down bloated state-owned companies as economic growth slows. State-owned companies have become plagued by overcapacity and inefficiency, but also provide jobs to millions of people and power a huge portion of the economy - from energy to commodities to shipping. Last year the number of enterprises administered by Xiao's regulator drop from 112 to 106, with high-profile mergers by China Ocean Shipping Group and China Shipping Group, as well as two trainmakers.

He said China won't see the sort of layoffs recorded in the 1990s when some 60,000 firms were closed and 40 million workers lost their jobs. In December, China set a two-year deadline for money-losing enterprises owned by the central government to improve their performance, with firms that suffer losses for three straight years liable to be shut down. The sector is now being divided into companies that are considered commercial or public-service entities. Among those companies targeted for mergers could be the airline sector.