China's shipbuilding merger: Next phase of SOE restructuring

Editor's note: Ge Lin is a CGTN economic commentator. The article reflects the author's opinions and not necessarily the views of CGTN.

On Wednesday, trading in China State Shipbuilding Corporation (CSSC) and China Shipbuilding Industry Company (CSIC) was suspended, signaling the final step in a year-long process of negotiation and regulatory approval.

Once the merger is complete, the combined entity – retaining the name China State Shipbuilding – will hold assets exceeding 400 billion yuan ($55.7 billion), instantly becoming the world's largest listed shipbuilder. This deal will also set a new record as the biggest absorption-type merger ever cleared by China's A-share market.

This deal is not an isolated episode, but rather a textbook example of Beijing's push in recent years for central state-owned enterprises (SOE) to "strengthen core businesses and optimize industrial layout." Since the China Securities Regulatory Commission introduced the "six M&A measures" last September, SOE mergers have accelerated noticeably, underscoring a clear trend of consolidation in key industries.

Integrating resources to reduce transaction costs

At its core, this merger is about boosting efficiency by bringing resources together. Both companies sit under the China State Shipbuilding Group umbrella. Their strengths partially complement each other: the southern branch CSSC builds more container ships, LNG carriers, and some specialized vessels, while the northern branch CSIC focuses more on oil tankers, bulk carriers, naval ships, and offshore platforms.

Yet, despite these differences, there's also considerable overlap – leading to duplicated investments and sub-optimal capacity utilization. By unifying their capabilities, the merged company can reshape the industry structure – design, materials, supply chain, and manufacturing – into a coherent and vertically integrated system.

From an economics perspective, this merger can be understood through the lens of transaction costs. Enterprises face three main types of costs: production, managerial, and transaction costs – the latter referring to expenses incurred when coordinating activities across separate organizations.

In this case, the two major shipbuilding companies under the same parent group previously handled technology coordination, supply chain management, and quality control as separate entities. This arrangement led to inefficiencies and duplicated efforts.

By merging, these external transaction costs become internal management tasks, paving the way for smoother collaboration, more efficient resource allocation, and significantly enhanced operational performance – a critical advantage in an industry defined by intricate systems integration and fierce global competition.

Building market power for technological leadership

Efficiency is only half of the story. The other half lies in market power and the capacity to channel profits into technological upgrading. Shipbuilding is a sector with extremely high fixed costs and relatively low marginal costs, which naturally pushes the industry toward greater concentration. In such an environment, scale is not just a competitive edge – it is often a prerequisite for survival.

The merged entity will command a larger share of the global order book, strengthening its bargaining position with both upstream suppliers and downstream buyers. That pricing strength does more than lift margins, it becomes the capital base for advancing R&D, pushing green innovation, and upgrading manufacturing to the industry's frontier.

Another advantage for technological progress comes from the civil–military fusion model. Technologies first used in naval ships can also be applied to large LNG carriers, smart cargo ships, and deep-sea platforms. In the other direction, new ideas from civilian projects – such as cleaner engines or automated navigation – can be adapted for military use. This exchange helps China's shipbuilding industry keep a broad product range and stay ahead in the shift toward greener, smarter, and more autonomous vessels.

US pushback against China's shipbuilding rise

The road to consolidation has not been free of external headwinds. Washington has persistently opposed the merger, increasingly framing China's expanding maritime manufacturing capacity as a "national security" concern. Proposed measures – from special port fees to restrictions on Chinese-built or operated vessels – go beyond normal economic competition, employing an aggressive approach that disrupts global supply chains and impacts not only China but numerous international stakeholders.

The irony is that similar consolidation moves are celebrated elsewhere: South Korea's Hyundai–Daewoo merger and Japan's Imabari–Shin Kurushima alliance both created larger players with higher market concentration, while also retaining a mix of civilian and defense work. That Washington accepts these models in Seoul and Tokyo but condemns them in Shanghai and Dalian exposes a deeply ingrained discriminatory mindset – rooted more in fear and geopolitical rivalry than in objective risk assessment.

The broader trend of China's central SOE consolidation

Viewed through the longer arc of China's industrial policy, the "two ships" merger is part of a decade-long evolution in SOE restructuring toward segment consolidation and supply chain integration. The most visible precedent is China Baowu Steel Group, formed by the merger of Baosteel and Wuhan Iron & Steel in 2016. Baowu has since absorbed multiple regional steelmakers, streamlined capacity, and moved up the value chain, becoming the world's largest steel producer.

Similar moves can be seen in other industries such as energy, heavy machinery, and nuclear technology. Just in the past year, China's A-share market has seen more than a dozen major asset restructurings, especially in machinery and equipment, covering fields from nuclear instruments to chemical machinery.

The shipbuilding merger is far from an isolated event. It embodies a broader recognition that, while industrial competition among fragmented players once drove progress, China's capital-intensive, state-driven sectors have now entered a new era. This stage highlights strategic cohesion and concentrated strength as essential to advancing industrial development. Witnessing this shift, one can perceive a broader transformation unfolding across China's industrial landscape.