Guiding Opinions on Accelerating the Merger and Reorganization of Enterprises in Key Industries

Gong Xin Bu Lian Chan Ye [2013] No. 16

January 22, 2013

The competent industry and information technology departments, development and reform commissions, financial departments (bureaus), human resource and social security departments (bureaus), land and resource departments (bureaus), commerce departments (bureaus), central sub-branches of the People's Bank of China, state-owned assets supervision and administration commissions (bureaus), offices of the State Administration of Taxation, local taxation bureaus, industry and commerce administrations, banking regulatory bureaus and securities regulatory bureaus of all provinces, autonomous regions, municipalities directly under the Central Government and the Xinjiang Production and Construction Corps:

Accelerating the merger and reorganization is an important measure to promote the industrial transformation and upgrading and accelerate the transformation of development methods, and an inevitable choice to enhance the international economic competitiveness of China and further improve the socialist basic economic systems, and is conducive to improving the resources allocation efficiency, adjusting and optimizing the industry structure, and cultivating and developing large enterprises and groups with international competitiveness. The Outline of the Twelfth Five Year Plan for National Economic and Social Development, the Opinions of the State Council on Promoting the Merger and Reorganization of Enterprises (Guo Fa [2010] No. 27) and the Industrial Transformation and Upgrading Plan 2011-2015 (Guo Fa [2011] No. 47) have put forward to accelerate the merger and reorganization of enterprises with the focus on such industries as automobile, steel, cement, ship, electrolytic aluminum, rare earths, electronic information and pharmaceuticals. In order to thoroughly carry out the requirements of the arrangement by the State Council, the opinions on accelerating the merger and reorganization of enterprise in key industries are hereby put forward as follows:

I. Guiding Ideology and Basic Requirements
1. Guiding Ideology. Guided by the Deng Xiaoping Theory, the important thought of "Three Represents" and the scientific development outlook, taking industry structure adjustment as the main theme and focusing on the industries with obvious economies of scale, efforts shall be made to adhere to the marketization operation, give play to the dominant role of enterprises, give full play to the guiding role of the government, improve the industry concentration and resource allocation efficiency, enhance international competitiveness, promote the orderly and healthy development of the key industries, and accelerate the adjustment of economic structure and the transformation of development methods.
2. Basic Requirements
--- To adhere to marketization operation and give play to the dominant role of enterprises. The foundational role of the market shall be given full play, while the economic principles and market rules shall be followed. The wills of enterprises shall be respected and the merger and reorganization shall be carried out by enterprises voluntarily and independently through equal negotiation.
--- To improve policies and measures and play the guiding role of the government. The relevant industry plans, policies and measures shall be improved to make efforts in building up a policy environment in favor of merger and reorganization of enterprises. The administrative system for merger and reorganization service for enterprises shall be improved, and efforts shall be made to eliminate any system or mechanism barrier that restricts the merger and reorganization of enterprises, and regulate the administrative activities.
--- To promote system innovation and accelerate transformation and upgrading. Enterprises shall be supported to improve their governance structure, strengthen their technology advantages, carry out management innovation, reinforce brand building, eliminate outdated capacity, cultivate international competitiveness and promote transformation and upgrading, by merger and reorganization.
--- To carry out guidance by classification and promote the coordinated development of large, medium and small-size enterprises. The guidance by classification shall be given in accordance with the actual situation of enterprises and according to the characteristics of the industry, so as to facilitate the fair competition and survival of the fittest among enterprises with different ownership, promote the coordinated development of large, medium and small-size enterprises, and form a market pattern with reasonable structure, effective competition and regulated order.
--- To strengthen the overall planning and maintain the harmony and stability of enterprises and the society. The relevant laws, regulations and industry policies shall be strictly implemented, and the interests of the State, local governments, enterprises and employees shall be all given in consideration, and the legitimate rights and interests of the creditors, debtors and enterprises' employees and other stakeholders shall be legally protected, so as to facilitate the harmony and stability of enterprises and the society.

II. Main Objectives and Key Tasks
Efforts shall be made to enhance the industry concentration, facilitate the scale and intensive operation, improve the market competitiveness, cultivate a good number of large enterprises and groups with international competitiveness and promote the industry structure optimization and upgrading by accelerating the merger and reorganization of enterprises. Enterprises shall be further promoted to transform the operation mechanism, strengthen and improve internal management, perfect corporate governance structure and establish modern enterprise systems. The strategic adjustment to the national economy pattern and structure shall be accelerated, the development of non-public sectors of the economy and small and medium-size enterprises be facilitated, and the basic economic system to keep public ownership in a dominant position be improved and diverse forms of ownership be developed side by side.
The acceleration of the merger and reorganization of enterprises in key industries shall be guided by the industry policies, and take the key fields of the industry development as the breaking point. Large backbone enterprises are encouraged to carry out trans-regional and trans-ownership merger and reorganization. Enterprises are encouraged to expand their industry chains and form strategic league by merger and reorganization. Besides, enterprises are encouraged to "go global", participate in the integration and operation of global resources, enhance the international operation capacity and improve international competitiveness.
1. Automobile Industry. By 2015, the top 10 automobile enterprises shall have an industry concentration of 90%, and be merged into 3-5 large automobile enterprise groups with core competence.
The horizontal merger and reorganization of automobile enterprises shall be promoted. The automobile enterprises are encouraged to integrate element sources, optimize product series, reduce operation costs, enhance the rate of capacity utilization, and make efforts in promote self-own brand development, cultivate core competence of the enterprise and realize the scale and intensive development, by means of merger and reorganization.
The merger and reorganization of spare part enterprise shall be promoted. Spare part backbone enterprises shall be supported to enlarge their scale, establish long-term strategic cooperation relationship with automobile manufacturing enterprises, develop strategic league and realize the labor division based on specialization and the industrial coordination, by means of merger and reorganization.
Large automobile enterprises shall be supported to extend to the service sectors by means of merger and reorganization. The automobile industry shall improve its service system, take brand marketing as its priority, make great efforts in research and development (R&D), procurement, modern logistics, automobile finance, information service and commercial service, and realize the integrated development with the service industry and the manufacturing industry.
Support shall be given to any global resource integration and operation in connection therewith. Automobile enterprises are encouraged to "go global", take the opportunity to carry out multi-national merger, optimize the resources allocation all over the world, develop and improve the global production and service network, enhance the international operation capacity and strengthen the international competitiveness.
2. Steel Industry. By 2015, the top 10 steel enterprise groups shall have an industry concentration of about 60%, and form 3-5 enterprise groups with core competence and relatively strong international influence, and 6-7 enterprise groups with relatively strong regional market competitiveness.
Emphasis shall be put on the support to the trans-region and trans-ownership merger and reorganization of large steel enterprise groups. Steel enterprises with regional advantages shall be proactively supported to complete merger and reorganization. The number of steel enterprise shall be slashed so as to enhance the concentration of the steel industry. The steel enterprises after reorganization shall be supported to carry out technology transformation, eliminate outdated capacity, optimize regional layout and enhance market competitiveness. Steel enterprises are encouraged to participate in merger and reorganization with overseas steel enterprises.
Steel enterprises shall also be encouraged to extend their industry chains. Emphasis shall be put on supporting steel enterprises to participate in the integration of existing domestic mining resources and coking enterprises, and steel enterprise shall be encourage to reorganize domestic wasted steel processing and distribution enterprises that meet the environmental protection requirements.
3. Cement Industry. By 2015, the top 10 cement enterprises shall have an industry concentration of 35%, and form 3-4 construction material enterprise groups with a clinker capacity of no less than 100 million tons, a complete industry chain including mines, aggregates, commercial concrete and cement-based materials and products, and relatively strong core competence and international influence.
Emphasis shall be put on the support to the trans-region and trans-ownership merger and reorganization of backbone cement enterprises with advantages. The principle of intensive development shall be upheld to encourage enterprises to carry out powerful combination, merge and transform enterprises with difficulty and small and medium-size enterprises, and realize the reasonable layout of capacity, by such means as merger, equity acquisition, assets acquisition, assets exchange and debts reorganization.
Cement enterprises shall also be encouraged to extend their industry chains. Cement enterprises are encouraged to merge the upstream and downstream related enterprises on the basis of enabling the main business to grow stronger and larger, so as to optimize the logistics distribution and integrate and develop the industries of ready mix mortar, commercial cement and construction prefabricated units. The construction material enterprise groups with advantages in science and research and development are encouraged to integrate resources by merger, industry league and other means, blend the consultancy, testing, science and research, technology development, engineering design, installation debugging, projects contracting and other business, and facilitate the integrated development of operation, service and production.
The enterprises under reorganization are supported to integrate internal resources, and follow the development path of focusing on content. The combination of the merger and reorganization of enterprises with the restructuring, reshuffling, technology transformation and reinforcement of management of enterprises are encouraged. Enterprises are encouraged to make innovation on commercial modes and develop e-commerce.
4. Ship Industry. By 2015, the shipbuilding output of the top 10 shipbuilding enterprises shall account for at least 70% of the national total shipbuilding output, and have more than five enterprises ranking top 10 shipbuilding enterprises in the world. 5-6 marine engineering equipments general contractors with international influence shall be formed, and a group of specialized contractors shall be established. Ship-repair enterprises with brands and relatively strong international competitiveness shall be formed.
The trans-region, trans-sector and trans-ownership merger and reorganization led by large backbone shipbuilding enterprises shall be proactively accelerated, so as to optimize resources allocation, develop enterprise group with international competitiveness and enhance industry concentration. Enterprises with advantages shall be promoted to enlarge the high-end products manufacturing capacity by means of merger and reorganization. Upstream and downstream enterprises are encouraged to form strategic league and conduct industry chains integration. Backbone enterprises shall be promoted to carry out overseas merger. Small and medium-size shipbuilding enterprise are encouraged to gear to the needs of market segments and carry out differentiation competition, develop under the direction of "professional, elite, special and novel", and form their features and brands in their advantageous fields. Marine low- and medium-speed diesel engine manufacturing enterprises, deck machinery manufacturing enterprises and other supporting enterprises shall be guided to take capital and products as the link to intensify the efforts in professional reorganization.
5. Electrolytic Aluminum Industry. By 2015, a certain number of electrolytic aluminum enterprise groups with core competence and international influence shall be formed, and the smelting output of the top 10 enterprises in this industry will account for 90% of the national smelting output. Support shall be provided to enterprises in this industry with advantages in economy, technology and management to merge and reorganize with outdated enterprises, and to the trans-region, trans-sector and trans-ownership merger and reorganization. Enterprises with advantages are encouraged to complete the powerful combination to actively promote the joint reorganization with upstream and downstream enterprises. The integrated operation of "coal (water) -electricity -aluminum" and "mine-smelting-processing-application" shall be encouraged to realize the scale and intensive development of enterprises in this industry, cultivating 3-5 large enterprise groups with relatively strong international competitiveness.
6. Rare Earths. Efforts shall be made to implement the relevant requirements as provided in the Several Opinions of the State Council on Promoting the Sustainable and Healthy Development of the Rare Earths Industry (Guo Fa [2011] No. 12), and support large enterprises to take capital as the link to energetically accelerate resources integration and substantially reduce the number of enterprises engaging in the mining, smelting and separation of rare earths by means of alliance, merger and reorganization, so as to enhance the industry concentration and basically form the industry pattern led by large enterprises.
7. Electronic Information Industry. By 2015, 5-8 large backbone enterprises with sales income of no less than RMB100 billion shall be formed, and efforts shall be made in cultivating large enterprises with sale income of over RMB500 billion. Capital shall be taken as the link to advance the resources integration and industry blending, accelerating the development and formation of a group of multi-nationals with key core technologies, outstanding innovation capacity, high-profile brands and strong international competitiveness.
Backbone enterprises are supported to carry out merger, and efforts shall be made in advancing the industry chain integration, enhancing the industry chains management and operation level, and strengthening the overall competitiveness of the industry chains. The manufacturing industry shall be proactively advanced to extend to the service, and efforts shall be made in promoting the blending of products manufacturing and software and information service and the blending of manufacturing industry and operation industry, and hastening the occurrence of new products and new types of operation in great number, and encouraging and guiding the innovation on commercial modes. The vertical integration process of the industry chains shall be guided and accelerated so as to facilitate the optimization and reorganization of resources.
8. Pharmaceuticals Industry. By 2015, the sales income of the top 100 enterprises shall account for at least half of the sales income of the whole industry, and the market share of enterprises with top 20 sales of the major varieties of essential drugs shall reach 80%, and the scale and intensive production of essential drugs will be realized. The R&D and production, and upstream and downstream integration between the drug production enterprises and preparation production enterprises and between the Chinese herbal medicine production enterprises and the Chinese patent medicine production enterprises are encouraged, so as to improve the industry chains and enhance the resources allocation efficiency. Enterprises producing products of the same type are encouraged to complete powerful combination, and enterprises with advantages are encouraged to merge with other enterprises, and the intensiveness of resources to the advantageous enterprises shall be facilitated, so as to realize the scale and intensive operation and enhance the industry concentration. A group of large enterprise groups with international competitiveness and relatively driving force to the industry development shall be cultivated and formed.
9. Leading Enterprises of Agricultural Industrialization. The Opinions of the State Council on Supporting the Development of the Leading Enterprises of Agricultural Industrialization (Guo Fa [2012] No. 10) shall be thoroughly carried out to support the leading enterprises of agricultural industrialization to incorporate large enterprise groups by means of merger, acquisition and shareholding, etc. Efforts shall be made to cultivate and expand the leading enterprises, and build up a group of large leading enterprises with strong innovation capacity, high processing level and leading status of the industry. The leading enterprises shall be guided to concentrate in the advantageous production areas so as to form a group of leading enterprise clusters mutually supporting and compatible in functions and with close connection, so as to expand the regional leading industry and strengthen the regional economic development strength.

III. Proactively Guide Enterprises to Properly Carry out Merger and Reorganization
1. To scientifically formulate the scheme. Enterprises shall be guided to determine the targeted enterprises for merger and reorganization in accordance with their own development strategy planning and the requirements of the national industry policies. The choice of targeted enterprise shall be conducive to realizing the complement of advantages of each other in terms of resource and giving full play to the synergistic effect to the maximum effect. The enterprises concerned shall, according to the macro-economic status and the situation of the industry and enterprise, do a good job in due diligence, seriously research and repeatedly discuss, and formulate the merger and reorganization scheme in a scientific way.
2. To strengthen risk control. Enterprises shall carry out merger and reorganization step by step and with plans, deeply study any controversy and problem that may occur in the merger and reorganization, pay high attention to the risks in market, finance and staffing that will face in the merger and reorganization, and all risks in the overseas merger. Enterprises shall strengthen risk management, identify risk elements, assess the degree of risk, properly formulate corresponding emergency scheme and measures, and build up and improve the risk management system.
3. To strengthen the integration after reorganization. Enterprises shall pay high attention to the integration of all element resources after reorganization, and strengthen the blending of the personnel, culture and management. Enterprises shall also take merger and reorganization as an opportunity to deepen the management system reform, proactively carry out the company system reform and joint-stock system reform, and further improve the corporate governance structure. And enterprises shall, according to the actual situation, carry out business procedure rebuilding in such aspects as human resource, finance, procurement, sales, production and R&D, optimize the allocation of such production elements as land, fund, technology and talents, make innovation on management mode and realize the supplement of advantages and the deep blending.
4. To strengthen organization and coordination. All regions shall, pursuant to the actual situation, establish the work coordination mechanism for merger and reorganization of enterprises, strengthen the organization and leadership in merger and reorganization of enterprises, and plan and coordinate the merger and reorganization work of the region on an overall basis. All local competent industry and information and technology departments shall play the leading role in strengthening the cooperation with the development and reform commission, the financial department, the human resource and social security department, the land and resources department, the commerce department, the sub-branches of the People's Bank of China, the taxation authorities, the industry and commerce administration, the banking regulatory authority and the securities regulatory authority, coordinating and solving all actual problems faced by the enterprises implementing merger and/or reorganization, and proactively promoting the merger and reorganization of enterprises in their regions. And the local competent industry and information and technology departments shall also give full play to the role of the coordination mechanism, deeply investigate and study, make efforts in solving the problems in the merger and reorganization of enterprises, and timely reflect the problems needed to be coordinated and solved by relevant authorities of the State. The Ministry of Industry and Information and Technology shall, together with all other relevant departments, proactively coordinate and solve the problems reflected from local low-level authorities. All regions may, pursuant to the actual situation, choose the key industry which the region will give priority support for enterprises in such industry to conduct merger and reorganization, and shall study and issue the specific supporting policies.
5. To carry out policies and measures. All regions shall seriously and thoroughly carry out the Opinions of the State Council on Promoting the Merger and Reorganization of Enterprises, and policies and measures on facilitating merger and reorganization of enterprises in terms of fiscal, taxation, financial service, debts and credits, staffing, land and mining resource allocation, to support enterprises to carry out merger and reorganization. All local industry and information and technology departments, development and reform commissions, financial departments, human resource and social security departments, land and resources departments, commerce departments, state-owned assets supervision and administration departments and industry and commerce administration shall, according to the actual situation of the regions, study and issue the specific measures for facilitating merger and reorganization of enterprises, support the enterprises implementing merger and reorganization to carry out technology transformation on a priority basis, encourage enterprises to strengthen and make innovation on management, and improve the comprehensive competitiveness of enterprises. For enterprises eliminating outdated capacity by means of merger and reorganization, the central fiscal award fund for elimination of outdated capacity shall give support to such enterprises with focus and increase of the number of award.
6. To build up a good environment. Efforts shall be made to adhere to the marketization operation, fully respect the will of enterprises, fully mobilize the initiatives of enterprises, guide and encourage enterprises to voluntarily and independently carry out merger and reorganization. Efforts shall be made to diligently eliminate, revise and repeal all policies, regulations and practices that are disadvantageous for merger and reorganization of enterprises, and in particular, shall resolutely cancel the regulations issued by the local governments or authorities to restrict foreign enterprises to carry out merger and reorganization with enterprises in the region. The regional interests sharing mechanism for trans-region merger and reorganization shall be put under active exploration. Under the precondition of no violation of the provision of relevant policies of the State, the regions may, according to assets scale and profitability of the enterprises, enter into the finance and tax interests sharing agreement for merger and reorganization of enterprises, to properly solve the attribution of the added-value after merger and reorganization of enterprises and other statistics data and realize the sharing of the achievements of the merger and reorganization of enterprises.
7. To do a good job in management service. All local relevant departments shall urge enterprises to strictly implement the relevant laws and regulations and national industry policies, standardize the operation procedure, strengthen information disclose, prevent insider trading and prevent any moral risk. Foreign capital is encouraged to participate in the restructuring and reshuffling as well as merger and reorganization of domestic enterprises by means of participation in shareholding and merger, etc., and the safety review on the merger of domestic enterprises by foreign capital. For merger and reorganization of enterprises meeting the statutory standards for declaration of undertakings concentration, the anti-monopoly review on undertakings concentration shall be legally made. All regions shall strengthen the guiding services over the merger and reorganization of enterprises, study and formulate the implementing opinions for accelerating the merger and reorganization of enterprises in their regions, and combine the merger and reorganization with the restructuring, reshuffling, management innovation, technology transformation and elimination of outdated capacity. The information exchange channel for the merger and reorganization of enterprises shall be extended, and a public service platform for merger and reorganization of enterprises shall be established. All local relevant departments shall promote the specialized and standardized development of the agency service, pay attention to introduce and cultivate special talents familiar with the enterprise merger business, especially the overseas merger business, and proactively provide market information, strategy consultancy, legal consultant, financial advisor, land estimate, assets assessment, equity trading, financing agent and independent audit, and corporate management as well as other agency services, to the enterprises. The typical experience shall be summarized and promoted properly to be used for publicity and guidance.