The Chinese are thinking about creating a chemical giant with revenues of $100 billion

At the initiative of the Central government of the PRC state ChemChina and Sinochem Group began discussions on a possible merger, told Reuters three sources familiar with the negotiations. “The government has authorized Sinochem to conduct negotiations on a possible merger with ChemChina,” — said one of them. Another source told Reuters that the two companies have already started mutual due diligence. On this news shares traded on the stock exchange “daughters” the companies — Sinochem International and Sinofert Holdings — rose by 10 and 6% respectively in Shanghai and Hong Kong.

The representative of ChemChina Reuters denied information about a possible deal, and the representative of Sinochem, said that he did not know about this.

If the merger takes place, the total revenue of the Sinochem — ChemChina for the nine months for the year 2015 will be $99.4 billion, the same as was, for example, last year the revenue of “Gazprom” on the Fortune Global 500 (“Gazprom” — the leading Russian company in the ranking).

Through such transactions as mergers Sinochem and ChemChina, the Chinese authorities want to reduce the number of state enterprises and in return get a larger, more competitive global industry players, according to sources to Reuters. Earlier in the same model were created by transportation and logistics giant Cosco and China Shipping manufacturer of locomotives and wagons CNR-CSR, and recently it announced the merger of steel companies Baosteel and Wuhan Steel.

In the global Fortune among the first 50 of 11 Chinese companies with a combined revenue of nearly $2 trillion.

The combined company Sinochem — ChemChina will produce a lot of goods, from petroleum products and automobile tyres to condoms, medical gloves and tools for the extermination of insects. Both companies also produce fertilizer and Sinochem have more units of real estate and financial services. With annual revenue of $100 billion Chinese giant easily bypass the German BASF, the largest by revenue global manufacturer of industrial chemicals.

A source tells Reuters that Sinochem and ChemChina businesses complement each other: the assets of Sinochem in the oil and gas production can provide the raw materials for the nine refineries ChemChina, Sinochem access to trade rubber helps the tire business, ChemChina, Sinochem agricultural fertilizers and agro-chemicals ChemChina also fit together.