China Shipping Group Co. and China Ocean Shipping (Group) Co. (Cosco Group) have agreed to merge 11 of their shipbuilding yards into a single entity.

The resulting merger will create the country's third largest shipbuilding group, as the two companies have combined headcount of more than 25,000.

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According to the Wall Street Journal, the merger may likely be announced by early next year.  It is not yet clear, though, whether the merger will involve any layoffs.

The consolidation also points to China's push to reduce its reliance on heavy industry. It can be noted that the shipping industry is currently battling with low ship order volumes.

These two state-owned enterprises merged their port operations and fleets in 2015. The combined entity called China Cosco Holding is the fourth biggest container operator in the world, based on capacity.  China Shipping Group has five yards under its control, while Cosco owns six yerds.

Cosco likewise has two Joint Venture yards with Kawasaki Heavy Industries. It is not yet known if these yards will be included in the merger. However, The Wall Street Journal cited Kawasaki as saying that they may exit the shipbuilding business.

Global shipping business is facing strong headwinds. In fact, the near term outlook for the industry remains grim.

China Cosco Holdings reported $1.1 billion loss for the first half of the year. China builds half of the global new ships, but the industry is now shrinking fast. The industry is suffering from fall in ocean trade and overcapacity.

Chinese yards only received $3 billion worth of order this year, down from $26.5 billion orders in 2015.

TagsChina Shipping Group Co., China Ocean Shipping (Group) Co. (Cosco Group), Kawasaki Heavy Industries