Chinese workers level coal destined for one of China's electricity generating plants. Photo: AFP

The merger of state-owned coal producer Shenhua and energy utility Guodian is a clear signal that Xi Jinping is committed to further consolidation of state companies, especially in the energy sector, which will help the government cut industrial overcapacity and lower reliance on coal.

Analysts see the merger announced Monday as just the tip of the iceberg, Bloomberg reports:

“The Shenhua-Guodian merger is just the beginning of a wave of massive consolidations in China’s energy sector,” said Frank Yu, a Beijing-based analyst at Wood Mackenzie. “The landscape of major power utilities could be fundamentally reshuffled.”

“More central state-owned enterprise integration — particularly between power generators or between coal and power companies — will likely emerge,” Jenny Yang, director of China power and renewables at IHS Markit Ltd., wrote in a research note. “Some of the other large power generation companies will likely be targets for future mergers.”

On possible future mergers:

China Huaneng Group, the country’s biggest coal-fired power producer, may merge with State Power Investment Corp., Bloomberg reported in May. SPIC Chairman Wang Binghua said in July that the company is in contact with Huaneng Group about a restructuring and “something big may happen later.”

China Huadian Corp. and China Datang Corp. are the remaining two of China’s large state-power companies. The asset value of those big five generators, as well as the nation’s two nuclear power developers and top two coal miners, could reach close to $1 trillion, according to Wood Mackenzie.

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