Shanghai pushes M&As for high-quality growth

Shanghai's emphasis on the development of pioneering industries, which can be seen in the latest policies to facilitate industry consolidation, can further boost innovation and advance the city's high-quality economic growth, said experts.

The Shanghai municipal government released on Tuesday an action plan to advance the restructuring of listed companies in the city from 2025 to 2027. Consisting of 12 measures, the plan said that Shanghai will support mergers and acquisitions among listed firms from the three industries of integrated circuits, biomedicine and new materials.

By 2027, about 300 billion yuan ($41 billion) in M&A deals should be signed in the above three sectors so as to form about 10 internationally competitive industry leaders. Over 2 trillion yuan of assets should be activated upon these deals, said the plan.

More M&A activity will be encouraged in Shanghai with the government's latest attempt. Listed companies, especially those focused on technological innovation, will benefit. Private equity and venture capital institutions in Shanghai will also be able to pursue substantial growth in the city, said Huang Yan, vice-chairman of the Shanghai Private Equity Association.

The action plan addresses the six measures released by the China Securities Regulatory Commission in late September to boost development of new quality productive forces.

Buoyed by various supportive measures, M&As will become a major theme in the capital market in the coming months, said experts from Haitong Securities. It is likely that listed semiconductor companies will actively carry out M&As to strengthen the synergy of the industrial chain and promote the rapid growth of platform-based enterprises, experts said.

Data from market tracker Wind Info show that Shanghai is home to 444 listed companies, with their combined market value standing at 9.38 trillion yuan.

The city has 34 listed IC companies, with their total market cap reaching 1.68 trillion yuan, and 52 Shanghai-based public biomedical firms, with a combined market value of about 651.7 billion yuan.

In July, Shanghai launched a fund of funds (FOF) covering three industries — IC, biomedicine and artificial intelligence. The FOF's total value is about 89 billion yuan.

According to the plan released on Tuesday, the FOF should be given full play while more market-based M&A funds should be introduced and established. The government's investment funds can participate in these M&A funds in the form of common shares, preferred shares and convertible bonds.

Tu Guangshao, founding chair of the board of the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University, said that M&A funds help optimize resource distribution. The size of M&A funds in China is still relatively small at present. Local governments should play a bigger role in supporting their development, Tu said.

The transformation of traditional industries via M&As should also be advanced in Shanghai, said the action plan. In specific, modern services and professional service providers — such as financial and logistics firms — are encouraged to pursue M&As so that more quality assets can be injected into these companies, thus elevating their investment value, according to the plan.

The merger between two Shanghai-based securities firms — Guotai Junan Securities and Haitong Securities — was approved by the municipal State-owned assets supervision and administration commission in early November.

Inferred from 2023 public domain data, the combined assets of the two brokerages stood at 1.68 trillion yuan. CITIC Securities, China's largest securities firm, saw its asset value exceed 1.45 trillion yuan at the end of last year.

Wang Kai, chief strategist at Guosen Securities, said that room for further development of certain traditional industries is quite limited at present. Instead of passively waiting for market changes, including elimination from the market, it is a better option for companies to seek further industrial consolidation, he said.