China’s state-run shipping company, Sinotrans & CSC Holdings, and China Merchants Group, also a state-owned enterprise, signed an agreement in Beijing on Sept. 5 under which they will set up a very large crude carrier (VLCC) tanker joint venture, a Sinotrans senior executive told Guangzhou’s 21st Century Business Herald on condition of anonymity.

China Merchants will hold a 51% stake in the joint venture, to be called China Energy Shipment Company, while Sinotrans will own the remaining 49%. The registered capital of the new company will be US$1.1 billion, according to the Sinotrans source.

The registration procedure is still underway in Hong Kong and is expected to be complete by the end of September, the source added.

Once the joint venture takes off, it will qualify as the largest oil tanker company in China, with its long-term shipment capacity expected to be among the world’s top three.

The joint venture was announced after China’s State Council published its “opinions on how to promote the development of the marine shipping sector in a healthy manner” on Sept. 3. In its “opinions,” the State Council suggested shipment enterprises speed up mergers and the reform process so that they can raise their risk-resistance capacity and international competitiveness.

Whether this kind of “stock cooperation” between Sinotrans and Merchants Group will be beneficial for other shipment companies suffering from financial woes has drawn mixed reactions in the sector, with some senior executives at shipment companies interpreting the new venture as the start of more frequent collaborations between state-owned enterprises.

According to the joint venture framework agreement published by Merchants Groups on Sept. 11, the new tanker company will have a seven-member board of directors. The chair position of will be taken up by a board member from Merchants Group, while Sinotrans will offer someone to serve as vice chair.

If the joint venture is able to integrate the fleets of the two companies as scheduled, it will own a total of 26 VLCCs in the short term, totaling 7.8 million tons in terms of deadweight tonnage (DWT).

In the long run, the new company will have 38 VLCCs and 11.7 million tons in DWT, according to Hai Tong Securities analyst Jiang Ming.