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Recently, Sinochem Group Corporation (hereinafter referred to as Sinochem) and China National Chemical Corporation (hereinafter referred to as Sinopec) have taken new steps toward merger. Sinochem Group merges with China National Chemicals – 2,200 words | Recommended reading time: 4 minutes. On January 7th, the Beijing Property Rights Exchange published information regarding a property transfer: China Agrochemical International Co., Ltd. (hereinafter referred to as Agrochemical International) intends to sell 100% of the shares in Jiangsu Huaihe Chemical Co., Ltd. (hereinafter referred to as Huaihe Chemical) for 231 million yuan. The transfer announcement indicates that the entity responsible for approving this property transfer is Sinochem. It is worth noting that not only Sinochem Chemicals, but also Sinochem Group is adjusting its agrochemical business. On August 18, 2018, Sinochem International, a listed company under Sinochem Group, issued a statement announcing its intention to sell 100% of the shares in Sinochem Crops and Agricultural Research Company. Industry insiders generally believe that Sinochem Group and China National Chemical Corporation’s successive consolidations of their agrochemical businesses are in line with Ning Gaoning, the heads of these two companies, whose style is to oversee large-scale integrations in various corporate mergers and acquisitions. This move indicates that the two companies may already be preparing for a merger, which also signals the emergence of a petrochemical giant. ◆◆◆A petrochemical giant is on the horizon; if Sinochem Group and China National Chemical Corporation manage to merge successfully, they will overtake BASF to become the world’s largest chemical company ； Moreover, the new company’s revenue will exceed that of CNOOC, China’s third-largest oil producer, pushing the company’s overall strength to a new level. On January 7, Sinochem approved the transfer of 100% of the shares in Huaihe Chemical. It is worth noting that Huaihe Chemical was not the first chemical company that Sinochem planned to divest prior to the merger. In October 2018, Sinochem put up for sale 50.98% of the shares in Cangzhou Dahuahua Group, which is one of the three listed companies in Sinochem’s agrochemical business segment. In addition, Sinochem is also adjusting its agrochemical business. On August 18, 2018, Sinochem International, a listed company under Sinochem Group, issued a statement announcing its intention to sell 100% of the shares in Sinochem Crops and Agricultural Research Company. Regarding the adjustments to the agrochemical businesses of both parties, many industry insiders point out that Ning Gaoning is behind a series of these actions. Last July, Ning Gaoning, who was then the Party secretary and chairman of Sinochem Group, was appointed by the State-owned Assets Supervision and Administration Commission to also serve as the chairman of China National Chemical Corporation. As a barometer of the restructuring and integration of central state-owned enterprises, this appointment further confirms the rumors regarding the merger of the two sectors. Bloomberg reported in September last year that Chinese authorities had given preliminary approval to the merger of Sinochem and China National Chemical Corporation, assigning Ning Gaoning, the heads of both companies, to oversee the development of the implementation details. According to people familiar with the situation at the time, Ning Gaoning had been examining the potential sale of assets from both companies, while also reviewing areas of overlap and potential synergies. Shortly after, Bloomberg reported in December last year that the management teams of Sinochem and China Chemical had completed the preparations for the deal. It is easy to see from above that oil giants are on the horizon. As one of China’s four major **oil companies**, Sinochem is currently active in five sectors: energy, agriculture, chemicals, real estate, and finance. To date, it has been listed on the Fortune Global 500 list 28 times. On the 2018 Fortune Global 500 list, Sinochem Group ranked 98th, and it was named by Fortune as one of the \"World’s Most Admired Companies\" for two consecutive years. Sinochem is China’s largest chemical company. It currently operates in six main business areas: new chemical materials and specialty chemicals, basic chemicals, petroleum processing, agrochemicals, tire rubber, and chemical equipment. It ranks 167th on the Fortune Global 500 list. As domestic petrochemical giants, Sinochem Group and China National Chemical Corporation will generate combined revenues of over 100 billion dollars after their merger, surpassing BASF (whose revenue, as listed in Fortune’s 2018 Global 500 list, was 72.67 billion dollars), to become the world’s largest chemical company. ◆◆◆What lies behind the merger? Speaking of the integration of these two areas, in fact, signs of such integration became apparent after China National Chemical Corporation acquired the Swiss agrochemical giant Syngenta. At the beginning of 2015, Sinochem, in an effort to build a more complete chemical industry chain, initiated the largest overseas M&A deal by a Chinese company to date: it made an offer to acquire the Swiss agrochemical giant Syngenta for a total amount of $44 billion. Including the $5 billion loan used to assume Syngenta’s debts, the total cost of the acquisition was around $49 billion. In June 2017, Syngenta’s acquisition was completed, laying the foundation for China’s agrochemical industry. As a result, Sinochem’s total debt level surged by nearly 280 billion yuan. Previously, industry analysts suggested that the merger between Sinochem and China National Chemical Corporation was aimed at giving Sinochem sufficient financial strength to acquire Syngenta. In fact, in recent years there has been a vigorous trend of mergers among chemical companies, and the concentration of the industry within these companies has been increasing steadily; M&A and integration have thus become a trend in this sector. 2017 was a landmark year for restructuring and mergers and acquisitions in the global chemical industry, with such activities remaining highly active. In terms of the number of M&A deals, the chemical industry saw 637 M&A transactions, maintaining strong momentum. Moreover, there are many chemical giants involved in M&A activities. Among these, the two largest chemical companies in the United States, Dow Chemical and DuPont, merged, while the American paint giant Sherwin-Williams completed its acquisition of Wilcox, becoming the world’s largest paint manufacturer. In fact, in recent years, the chemical industry has shown a keen interest in mergers and reorganizations, clearly in order for companies to maintain their competitiveness amid the trend toward higher-level development in this sector. To this end, if Sinochem and China National Chemical Corporation carry out restructuring and merger, their overseas investments made over the years will help the new entity enhance its competitiveness in international markets and better cope with the uncertainties of the external environment. At the same time, the merger of Sinochem and China National Chemical Corporation will help accelerate the adjustment of the industrial structure; by complementing each other’s strengths, the two companies can create a global chemical giant with a wide range of operations, coverage across the entire industry chain, and a more complete industrial structure. ◆◆◆Merger for complementary businesses: By merging, the two major chemical giants can complement each other’s operations, integrate upstream and downstream processes, and thus create a more complete industrial chain. In the refining and chemical processing sector, Sinochem Group focuses its refining projects on the Quanhuai Petrochemical Industrial Park in Fujian, while China National Chemical Corporation concentrates its efforts in northern regions such as Shandong, Daqing, and Tianjin. The two companies operate in the north and south respectively, covering the entire country. In terms of crude oil supply, Sinochem has built a strong capability for acquiring overseas oil resources as well as a sales and trading network, thanks to its good cooperative relationships with numerous oil-producing countries **and** their oil companies. In 2018, among the first batch of import quotas for non-state-owned crude oil trade issued by the Ministry of Commerce, Sinochem was granted an allowance for importing 16.67 million tons of crude oil. Undoubtedly, the crude oil supply channels become more diversified after the merger. In the rubber industry, Sinochem is a major global producer and supplier of natural rubber. With the completion of the acquisition of Halcyon Company, Sinochem has become the largest company in the world for the processing and distribution of natural rubber. After completing the acquisition of the Italian tire manufacturer Pirelli in 2015, Sinochem’s tire production capacity ranked first in China and fifteenth in the world. This means that Sinochem Group is a upstream enterprise of Sinochem. However, China National Chemical Corporation ranks third in the world in terms of total capacity for manufacturing rubber and plastic machinery. From this perspective, Sinochem Chemical is a upstream enterprise for Sinochem Group’s natural rubber and rubber chemicals business. In the agricultural sector, China National Chemical Corporation, as the world’s largest producer of non-patented pesticides, completed its acquisition of Syngenta in 2017, thereby addressing its shortcomings in the development of high-end patented pesticides and laying the foundation for a complete pesticide industry chain in China. Sinochem Group focuses its activities in the agricultural sector on fertilizer production, as well as seed and pesticide businesses; it excels in trading. Among its listed companies, Sinochem Fertilizer is the largest supplier and distributor of fertilizers in China. If a merger and reorganization take place, it is expected to significantly reduce competition among peers and enable complementary advantages. Editing | Guan Guan