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By Bloomberg

Shares of China’s state-owned enterprises surged Monday on speculation that the government is ready to embark on a fresh round of consolidation in its broader reform push.

China Railway Construction Corp. and China Railway Group Ltd. both were up more than 8 percent at the mid-day break in Shanghai, while China United Network Communications Ltd. surged by the 10 percent daily limit. China Agri-Industries Holdings Ltd. surged by as much as 17 percent in Hong Kong to its highest level since July 6. Sinotrans Shipping Ltd. jumped as much as 10 percent in Hong Kong as rival companies connected to China Shipping Group and COSCO Group suspended trading on plans for “major issues.” People familiar with the matter said Friday that China was considering merging the two companies.

“Chinese shipping-sector consolidation has been talked about for so long,” said Jackson Wong, associate director at United Simsen Securities in Hong Kong. “It appears it’s now finally moving along, so it’s raising hopes the reform process will get kickstarted across the board.”

China is preparing to overhaul its bloated and inefficient state-run companies to bolster an economy growing at the slowest pace in more than 20 years. The State Council has approved a plan to create two new sets of companies to oversee and channel funds to state-owned enterprises in the biggest reform effort in more than a decade, the South China Morning Post reported Sunday.

Reform Ideas

Analysts at state-owned Chinese investment bank CICC said ideas for reforming state-owned enterprise may have been fleshed out after President Xi Jinping mentioned the issue on several recent occasions.

The Communist Party Politburo said at its midyear economic work conference that reform of SOEs is one of three key reform priorities for the second half of the year, CICC analysts led by Hanfeng Wang wrote in a research note Monday.

Regarding China Shipping Group and COSCO Group, the government may combine the two companies or merge some of their operations, according to the people familiar with the matter, who asked not to be identified because the deliberations aren’t public.

China Cosco Holdings Co., China Shipping Container Lines Co. and China Shipping Development Co. are among connected listed entities that suspended trading in their Hong Kong and Shanghai shares from Monday. Hong Kong’s Hang Seng Index was down 0.1 percent as of 2 p.m., while the Shanghai Composite Index was up 4.6 percent.

“They’re trying to grow their economies of scale to better compete with their bigger rivals,” said Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul. “By combining the two they will be able to offer their customers more services and major routes.”

A merger of shipping giants would follow the combination of state-owned CSR Corp. and China CNR Corp. in May to form CRRC Corp., a train equipment maker that dwarfs foreign rivals Siemens AG and Alstom SA. That step aimed to create economies of scale to help China compete more aggressively for overseas rail deals.