The State Council has approved the merger of two State-owned trading behemoths, the latest move from the Chinese Government in reshuffling State-owned enterprises amid fiercer competition resulting from the country's World Trade Organization (WTO) entry.

China's flagship grain trader China National Cereals, Oil and Foodstuffs Import and Export Corporation (COFCO) recently won formal approval from the State to take over China National Native Produce and Animal By-Products Import and Export Co (China Tuhsu), COFCO chairman Zhou Mingchen said.

COFCO is still negotiating with China Tuhsu over a detailed merger scheme, which is expected to be announced in October, Zhou said.

After the merger, China Tuhsu will be a wholly owned company of COFCO, but still retain its own name.

China Tuhsu owns net assets of approximately 3 billion yuan (US$36.3 million).

The combination of the two firms will definitely enhance COFCO's profile as a Fortune 500 company, on the road to doubling its net assets by 2010 from its 2001 figure of 12.1 billion yuan (US$1.5 billion).

The two companies are both under the supervision and administration of the National State-owned Assets Supervision and Administration Commission, which was set up last April. Before that, they were both administered by the Ministry of Foreign Trade and Economic Co-operation, which has been incorporated into the current Ministry of Commerce.

Analysts say the merger will help China Tuhsu regroup its assets and list part of its businesses at home or abroad.

China Tuhsu has thought about spinning off its tea business, a traditional core business, or its newly engaged agricultural processing business, and listing them "at a proper time."

But the firm's sluggish performance and weak financial profile have impeded the listing ambition, analysts say.

By contrast, COFCO is experienced in reshuffling assets and listing. The multinational company has two listed arms in Hong Kong, COFCO International and Top Glory International Holdings.

It is widely believed COFCO's rich experience in the capital market will be conducive to China Tuhsu's go-public endeavor.

(China Daily July 29, 2004)