(Yicai Global) April 4 -- Shares in Beijing E-Hualu Information Technology soared as much as 19.1 percent today after the Chinese digital service provider said its majority shareholder China Hualu Group is merging with China Electronics Technology Group in the country’s first amalgamation of central enterprises, which are directly owned by the central government, this year.

E-Hualu’s stock price [SHE:300212] closed up 16.6 percent at CNY46.51 (USD6.76). Earlier in the day it hit CNY47.50.

The plan is still subject to approval by authorities and will not greatly impact the company’s operations, Beijing-based E-Hualu said.

Both CETG and Hualu Group are owned by the State-owned Assets Supervision and Administration Commission and the merger of such central enterprises in a market-oriented manner is an important part of the new round of state-owned enterprise reform aimed at optimizing the layout of the state-owned economy.

Integrating smaller Hualu Group into CETC will help enhance the core functions and competitiveness of CETG as the two firms have complementary strengths, Liu Xingguo, a researcher on state-owned enterprise reform at the Hunan Automotive Engineering Vocational College, told Yicai Global.

CETG is mainly engaged in network security and information technology, while Hualu Group’s major focus is the digital economy, said Li Jin, chief researcher at the China Enterprise Research Institute. It is an important move in China’s industrial restructuring and a big step for the development of the digital economy.

Hualu Group is mainly engaged in the development, production, marketing and system integration of digital audio and video and electronic information. While CETG is a major force in the military electronics industry, with a dominant position in electronic equipment, industrial infrastructure, and network security.

This is a typical case of the interconnections and mutual promotion brought about by the consolidation of government-run companies, Li said. Just last year CETG acquired China Potevio, hiking the number of listed companies under its umbrella to 16, and boosting the company’s valuation to more than CNY600 billion (USD87.2 billion).

SASAC will continue to accelerate the optimization of the layout and structure of state-owned capital through restructuring and mergers, Weng Jieming, vice chairman of the commission, said in February. Since 2012, SASAC has reduced the number of central enterprises to 98 from 116 through such mergers.

There will be more such mergers this year, Liu said. Sectors with an urgent need to become stronger, better and bigger, such as network services, new materials, energy storage, environmental protection and pharmaceuticals, are expected to become key areas for the consolidation of central enterprises.

Editor: Kim Taylor