Photo: VCG

With the approval of the State Council, China's cabinet, the state-owned China Silk Corp merged with China Poly Group as a whole without payment, according to a statement sent to the Global Times by Poly Group on Monday.

Media reports said that it is the second major state-owned enterprise (SOE) capital restructuring case so far this year. The total number of SOEs in China has been reduced to 96 so far.

The first was the planned merger between the China Shipbuilding Industry Corp and the China State Shipbuilding Corp last week.

SOE reform has been a primary focus of China's economic reform. By allocating and restructuring state-owned capital more effectively, the role of capital can be better played in the market - the vitality and core competitiveness of enterprises could be enhanced, experts said.

China Silk, the only SOE with silk as its main business, will no longer be directly supervised by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), according to a statement it released on Monday.

China Silk's debt situation has been gloomy for several years, with its debt-to-assets ratio in 2016 reaching 97.51 percent, domestic news portal money.163.com reported on Monday. The merger is expected to give China Silk a new life.

"As a relatively small SOE, China Silk's market role has been weakened lately, while Poly Group has maintained a strong operating performance," Feng Liguo, a research fellow at China Minsheng Bank's research center, told the Global Times on Monday.

By merging into a more internationalized enterprise, China Silk could be more market-oriented in virtue of Poly Group's management and be more competitive in the future, Feng said.

"The critical issue of SOE restructuring is to promote business efficiency for both parties, in this case, especially for the weaker one," Feng said.

In 2018, Poly Group's operating revenue exceeded 300 billion yuan ($43.6 billion) with total profits of 40 billion yuan. By the end of 2018, the group's total assets exceeded 1 trillion yuan, ranking 312th on the Fortune 500, said the profile.