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China Briefings

Reports on China issued by Samsung Economic Research Institute

Restructuring of Chinese Companies to Improve Competitiveness

Restructuring of Chinese Companies to Improve Competitiveness

Samsung Economic Research Institute Beijing Office

Nov. 27, 2008

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In general, Chinese companies are more aggressive than their counterparts in the US, Japan and India in terms of diversifying their businesses. According to the Shanghai Shenzhen Stock Exchange, its listed companies had an average of 2.7 major businesses in 2005 (revenue of a single business account for more than 10% of a company’s total revenue), higher than the US (1.4), India (1.6) and Japan (2.3) though these figures have recently been declining. India, more notably, has seen a 0.9 drop from 2001 to 2005.

Diversification has been driven by market conditions in China. Large companies have grown rapidly, creating synergies across business sectors through centralized management. Backed by the government, the companies have maintained strong corporate competitiveness while diversifying. In fact, the government has encouraged large companies to acquire nearby companies that are under stress. For example, China Huayuan Group, which was established in 1992 as a state-owned company, made inroads into the pharmaceutical, textile, energy and real estate sectors via more than 90 mergers and acquisitions, expanding its capital 408-fold by 2004.

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