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Beijing 'planning merger to create shipbuilding giant'

Result would dwarf combined annual revenue of Hyundai, Daewoo and Samsung's shipbuilding units - already the world's top 3 by market value

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China State Shipbuilding Corp and China Shipbuilding Industry Corp have a combined revenue of at least 508 billion yuan, and make vessels ranging from cargo ships to aircraft carriers.

Beijing

CHINA'S government is working on a plan to combine its two biggest shipbuilders to create an industrial giant that would dwarf its South Korean rivals, according to people with knowledge of the matter.

The state council, China's cabinet, has given its preliminary approval to merge China State Shipbuilding Corp with China Shipbuilding Industry Corp, the people said, asking not to be identified as the information isn't public.

The two companies have combined revenue of at least 508 billion yuan (S$106 billion) making products ranging from aircraft carriers for China's navy to vessels for carrying containers, oil and gas for commercial companies.

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The move could be subject to change as many details need to be ironed out by ministries and regulators, the people said. Both companies have subsidiaries that trade on the stock exchanges in Shanghai and Hong Kong.

Representatives at the State-owned Assets Supervision and Administration Commission of the State Council, CSSC and CSIC didn't respond to faxed or emailed requests for comments.

The giant resulting from the merger will have more than twice the combined annual revenue of South Korea's Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries, the world's three biggest shipbuilders by market value.

CSSC and CSIC were formed in July 1999 under a plan to increase competition and efficiency among the country's defence companies.

The two Chinese groups, including their units, had 10.4 million compensated gross tons in order backlog as of February, equivalent to about 13 per cent of the market.

That compares with 7.72 million tons at South Korea's Hyundai Heavy, according to the latest report by shipping services provider Clarkson.

While the two are engaged in designing and building the Chinese navy's fleet of aircraft carriers, CSSC also has plans to design and build a cruise ship.

Shares of CSSC Offshore & Marine Engineering Group, a unit of CSSC, were halted from trading in Shanghai from Sept 27 through March 20.

Controlling shareholder China State Shipbuilding was contemplating a significant transaction involving the company, the listed company said in a Hong Kong stock exchange statement in September.

China Shipbuilding Industry, a subsidiary of CSIC that owns shipyards and other firms involved in the sector, climbed as much as 5.4 per cent in Shanghai trading on Friday.

In Korea, shares of Hyundai Heavy, Samsung Heavy and Daewoo Shipbuilding all fell more than 2.5 per cent.

Hudong Zhonghua Shipbuilding (Group), part of CSSC, was the first shipyard in China to build liquefied natural gas carriers. CSIC was the first shipbuilder to build a very large crude carrier, or VLCC. BLOOMBERG