From Stratfor
China is reportedly planning to merge the Sinochem Group and the China National Chemical Corp. (ChemChina) into a giant chemical company worth more than $100 billion. Both state-owned enterprises, however, have officially denied the merger talk. If China does, in fact, combine the two, it would create a downstream giant with a refining capacity of about 1 million barrels of oil per day that would rival China Petroleum & Chemical Corp. and China National Petroleum Corp., also state-owned enterprises.
Such a consolidation in China’s chemicals and hydrocarbons sector, if indeed underway, would have significantly different aims than Beijing’s heavy industry consolidation efforts. Those are more about propping up China’s struggling construction and industrial sectors; this merger would make its chemical giants more competitive with others in the industry and adding competition to the sector in general, which has historically had little.
China has in the past tried different measures to buoy ChemChina, granting it large quotas of crude oil imports for processing. There also have also been rumors that Beijing was considering merging China National Offshore Oil Corp., essentially an upstream oil operator, with a refiner such as ChemChina, to create a third integrated national oil company. The purported ChemChina-Sinochem merger could be just another step in that direction and perhaps one day could be extended to include the oil producer.
The potential coupling with Sinochem could complicate ChemChina’s pending acquisition of the Swiss seed and pesticide company Syngenta. The chemical company is in late-stage negotiations of a $43 billion deal for Syngenta. Though industry analysts do not believe a Sinochem merger would scuttle that deal, it would certainly add a level of uncertainty to it. The Swiss deal, though approved by regulators, could require another antitrust review if the Chinese companies merge.
