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China wants eight new Lenovos by 2015

Government decree says local firms should merge to reach global scale

Suitcase bulging with cash

Western technology companies' view of China as the biggest pool of potential customers ever is looking less accurate than ever, after the Chinese government called for the formation of up to eight super-companies through mergers and acquisition by 2015.

The calls came as part of government plans designed to urge the consolidation and reorganisation of companies across nine key sectors – including rare earths, pharmaceuticals and shipbuilding – so that they can better compete overseas.

In the IT sector, the government wants between five and eight “backbone enterprises” – these must be internationally competitive multinationals with high brand awareness and annual sales of over 100 billion yuan (£10.2bn).

As pointed out by the Wall Street Journal, as of 2011 only Huawei and Lenovo of China’s tech firms can lay claim to such impressive revenue figures.

The grand scheme is to move China away from producing cheap, low-end tech products and instead focus a handful of big global brands on producing high-end goods as well as software and services – an area where domestic firms have until now failed to make a significant impact.

There was no detail on which firms the government hopes to grow into the next Huawei or Lenovo. However, the overriding focus in the document was on the need for mergers and acquisitions among Chinese firms to build the new breed of super companies and improve competitiveness by integrating vertical supply chains.

It has not always been possible for Chinese firms to acquire abroad, of course.

Huawei’s proposed acquisition of 3Com was derailed over national security concerns and it withdrew a proposed takeover of 3Leaf Systems after similar government interference.

Creating several more Lenovos in the space of two years may be a push even for a country as ambitious and full of cash as China. ®

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