China Ocean Shipping Company (COSCO) announced on Friday it had bought China Ocean Shipping Tally Company (COSTACO), in a move expected to sharpen the competitiveness of the country's largest shipping firm.

The merger is seen as a big step in China's State-owned enterprises (SOEs) reform because COSCO was on the central government's list of 30 to 50 promising large SOEs, which are being strengthened to tackle global competition

"The merger has extended our business chain and also made us both more competitive," COSCO President Wei Jiafu told China Daily.

He said COSTACO, the country's largest shipping tally company, has become a subsidiary of COSCO, the world's second largest shipping company in terms of capacity.

Wei, whose company reaped a net profit of 12 billion yuan (US$1.4 billion) in 2004, promised the merger would not lead to job losses at COSTACO, which has 70 branches nationwide and employs more than 7,000 people.

COSTACO's business ranges from cargo measuring and weighing bulk cargo to supervising loading and unloading operations.

"Before merging, COSCO also had branches to operate tally services, and they have all been transferred to COSTACO," said Wei.

COSTACO said it would benefit from the merger by sharing the business network of its new parent firm, which already has 25 subsidiaries.

"We can become more competitive in tallying services and also extend to other services with financial support from our parent company," said COSTACO's Managing Director Lu Shengxuan.

Friday's takeover dropped the number of large SOEs under the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) from 178 to 177.

"These steps will continue if the government is determined to make its large SOEs capable of taking on global competition," said Lin Yueqin, a researcher with the Economics Research Institute under the Chinese Academy of Social Sciences.

China started speeding up SOE reform in the early 1990s and now the government is focusing on improving efficiency and global competitiveness, especially after China entered World Trade Organization.

Two years ago, the State Council selected 30 to 50 large SOEs which were expected to evolve into transnationals.

However, Lin said China's large enterprises still lag international players in terms of management, marketing, technical development and product innovation.

"I am concerned about the trends, even though some SOEs are large in terms of scale," said Lin.

But COSCO's president said his company has attached great importance to the promotion of its brand, integrating investment scale, management innovation and business expansion. "We have already set up a perfect governance structure and proper internal systems and we are taking the lead in SOE reform," said Wei.

While expanding the information technology and real estate arms of his firm, Wei said he would also up the firm's shipping capacity across the globe.

He said the overall shipping capacity of the company's container carriers will rise to 800,000 TEUs (twenty-foot-equivalent unit) by 2010 to enter the world's top three. It currently sits seventh.

(China Daily April 9, 2005)