SOEs require stronger competitiveness in overseas markets: expert

China's State assets watchdog said Monday it has not verified recent reports of massive mergers and acquisitions expected among the country's centrally-administered enterprises to avoid cutthroat competition and to better manage resources.

Citing sources within the State-owned Assets Supervision and Administration Commission (SASAC), several State media organizations, including the Xinhua News Agency, reported on Monday that there will be "massive mergers and acquisitions (M&A) among Chinese State-owned enterprises (SOEs)," and the more than 100 centrally-administered SOEs will be cut to around 40. But SASAC said that this news was not based on interviews with SASAC officials.

China's A-shares market responded enthusiastically to the news. The Shanghai Composite Index rose 3 percent Monday, hitting a seven-year high.

Analysts said that the market's high expectations for M&A among SOEs and the recent loosening of monetary policies are fueling the surge in the stock market.

Shares in China's two top oil giants, China National Petroleum Corporation (CNPC) and China Petrochemical Corporation (Sinopec), surged to the 10-percent daily limit on the Shanghai Stock Exchange on Monday, following reports that the two firms may be merged.

The two companies denied the merger through announcements released on the Shanghai Stock Exchange Monday evening.

"Share prices always rise following rumors about M&A among SOEs. It can't be denied that speculation does exist, but it also reflects investor optimism over the prospects for the eventual merger of SOEs," Shao Yu, chief economist at Orient Securities Co Ltd, told the Global Times on Monday.

"It is inevitable that there will be more M&A among centrally-administered SOEs, which is the focus of SOE reform. During a period in which China is hastening economic restructuring and industrial upgrading, the central government needs SOEs to play a leading role in some industries," Liu Yuhui, an economist at the Chinese Academy of Social Sciences, told the Global Times on Monday.

SASAC currently supervises 112 SOEs, with 227 listed companies affiliated with them. Their total market value is worth more than 10 trillion yuan ($1.61 trillion), according to a report from Beijing-based newspaper Economic Information Daily, which is owned by Xinhua, on Monday.

Shao said that more M&A among centrally-administered SOEs could help to reduce unnecessary competition among peers which has long led to thinner profits for SOEs.

"Not only that, the Chinese government's "One Belt, One Road" strategy requires these centrally-administered SOEs to strengthen their competitiveness in the overseas market by making themselves bigger and stronger through M&A," Shao added.

He also pointed out that SASAC will be more efficient at supervision if the number of SOEs is greatly reduced.

Liu Yuhui supports the M&A, saying that centrally-administered SOEs as State assets ought to be consistent with the country's strategy.

But not everyone agrees. "The M&A should not be totally decided by administrative orders, but should be based on the need for these SOEs," said a former official of SASAC of the People's Government of Hebei Province, who would only give his surname as Liu.

As to which fields would likely see more M&A, Shao said export-oriented and outward-looking SOEs require stronger competiveness in overseas markets.

China South Locomotive and Rolling Stock Corporation Limited (CSR) and China CNR Corporation Limited (CNR) - China's two main track equipment manufacturers - have been reported to have been involved in cutthroat competition in a series of bids around the world.

However, the ongoing merger of the two train companies is already seen by foreign media as a bigger threat in winning global deals over international giants such as Siemens and Bombardier.

Many are concerned that more M&A among SOEs will inevitably lead to monopolies, making it more difficult for private enterprises to compete with SOE giants.

Shao dismissed those concerns. "After all, private enterprises can profit from the growth of SOEs by participating in the mixed ownership reform of SOEs that the Chinese government is vigorously promoting."