Shanghai plans to merge two major taxi operators and create a new industry leader in a government-backed consolidation ahead of the World Expo to be hosted by the city in 2010, sources familiar with the situation said on Tuesday.

Shanghai Qiangsheng Holding Co (600662.SS: Quote, Profile, Research), which operates about 8,000 taxis in the city, plans to acquire major assets, including the taxi and car leasing business, of rival Shanghai Bashi Industrial (Group) Co (600741.SS: Quote, Profile, Research), said the sources, who declined to be identified because they were not authorised to discuss the plan publicly.

Bashi Industrial operates about 3,000 taxis in Shanghai, China's financial hub.

Once completed, the deal will make Qiangsheng the largest taxi operator in Shanghai, overtaking current market leader Dazhong Transportation (Group) Co (600611.SS: Quote, Profile, Research), which operates about 9,000 taxis, the sources said.

"The Shanghai government wants to create a flagship taxi operator in the city ahead of the World Expo in 2010," said a city government source who was briefed on the plan.

"The idea is for the city government to merge the lucrative taxi and leasing services of Bashi into its bigger rival Qiangsheng, although it does take time to complete such things," he added.

Bashi Industrial, also a public bus service operator, had announced on Monday that it would divest its public transport assets and become a stock market listing vehicle for the SAIC Group, China's biggest auto conglomerate.

http://www.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idUSSHA35305320080603