China aims for super big when it comes to its industrial enterprises. China’s bureaucrats announced plans this week to push mergers in nine key sectors including steel, cement, shipbuilding, autos, and aluminum, and also set targets for just how consolidated they should become.

The aim: to meld fragmented industries, stem soaring overcapacity and price wars, and eventually create world-competitive companies.

“A common feature of these nine industries is their economies of scale,” said Zhu Hongren, chief engineer of the powerful Ministry of Industry and Information Technology, which announced the merger strategy. The sectors, which also include electronics, pharmaceuticals, industrialized agriculture, and rare earths, suffer from surplus production and vicious price competition, he said, according to a Jan. 23 report in the official English-language China Daily. “Promoting mergers and reorganizations will help improve the efficiency of resource allocation, adjust and optimize industrial structures, and improve the global competitiveness of key enterprises.”

Last year, China had more than 160 million tons of surplus steel and over 300 million tons of excess cement, according to a report on the website of Caijing, a financial magazine published fortnightly. Aluminum, which reached a record high of 58,800 metric tons of average daily production in China in December, according to the International Aluminum Institute, is on track to face its biggest global glut since 2009, according to a recent Barclays (BCS)report. “The critical component of a near 1.8 million-ton surplus is that Chinese production growth will increase to close to 12 percent,” wrote Gayle Berry, a London-based analyst at Barclays.

China’s top 10 steel makers should account for 60 percent of output by 2015, up from about 50 percent now, with three to five that are internationally competitive, according to the “guideline for merger and reorganization of key sectors” issued by the MIIT and 11 other ministries. China now has as many as 2,700 steel mills, many of them small and inefficient, that are producing lower-value products such as rebar, the ribbed steel bars used to reinforce concrete. And the more sophisticated products made by the industry’s biggest players are now in oversupply, too.

For cars, the goal is for 90 percent of production to come from the top 10 makers; for aluminum, 90 percent; and for shipbuilding, 70 percent. But will government-mandated consolidation ultimately create more competitive companies, or just lead to bigger, coddled giants? “China’s industrial planners have always equated size with success, so in some ways it’s not surprising they continue to try to push companies into each other’s arms in order to create bigger companies,” Andrew Batson, research director at Beijing-based GK Dragonomics, wrote in an e-mail to Bloomberg Businessweek.

“This renewed push to consolidate into larger firms, across a wider range of industries, offers the same promise and the same pitfalls” as in earlier efforts to manage mergers, says Batson. “The potential benefit is that economies of scale improve and excess capacity is reduced; the potential downside is that competition is also reduced and the private sector loses out.”

Meanwhile, there is no guarantee that the consolidation will happen quickly. Beijing has been encouraging consolidation in steel for years with limited effect, points out Louis Kuijs, chief China economist at Royal Bank of Scotland (RBS) in Hong Kong.

“Every local government wants to have its own steel factories and all the major industries in its locality. And it doesn’t really see what is in it for me if I help the central government deal with overcapacity problems,” he says. “The reason they like having them is, of course, the investment, jobs, and fiscal revenue—all of the economic goodies.”

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