China Mulls State Assets Management Company

Cover, issue no. 408, March 2, 2009
Translated by Liu Peng
Original article: [Chinese]

China's state-owned assets watchdog was planning to consolidate some companies under the control of the central government (central SOEs) into an asset management firm to better govern state resources.

With its considerable assets scale and functions, the new entity has been compared to China Investment Corporation (CIC), the state's 200-billion US dollars sovereign wealth fund, by sources close to the matter.

Dubbed by some as the "CIC no.2" project, the new entity would be formed by merging a number of small and unprofitable central SOEs. The move would be in line with the government aim to reduce the number of central SOEs from the current 141 by some 40% by 2010.

The project would be spearheaded by the State-owned Assets Supervision and Administration Commission (SASAC), the watchdog and housekeeper of the country's 15 trillion yuan (2.2 trillion US dollars) non-financial state-owned assets.

The vice-director of SASAC would likely chaired the new entity, according to a source close to the matter. The source said, unlike CIC that focused on equity and financial investments, the new asset management firm would specialize in the field of real economy domestically, injecting capital into industries of importance to the country.

The new entity would be akin to CIC's subsidiary -- Central Huijin Investment Corporation, which had been a major source of capital injection for Chinese state-owned banks.

While Huijin was often referred to as an assets management firm for the financial sector, the new entity would look after other non-financial industries.

The EO learned that funding for the new entity would likely come from dividends earned from the central SOEs, which last year paid nearly 54.8 billion yuan worth of dividend to the Chinese government.

"The new entity will become a powerful arm of SASAC, by which it can realize the goals of restructuring and reforming central SOEs," said An Lin, president of Beijing Truth United Management Consulting Company, who has been following the development of SOEs reform for years.

Towards the end of the planned economy era, state-owned firms had slipped into inefficiently; and when the market-oriented economy reform took place, many sank further into debts.

However, in the past one decade or so, the government launched a campaign to reform and revive central SOEs through a series of consolidation, pooling resources into the hands of a few companies and granting monopoly status to some for certain industries.

Between 2002 and 2008, the number of central SOEs shrunk from 196 to 141, and those remained were becoming stronger and more profitable.

But there remained some small central SOEs that continued to register losses, and these were said to be the targets for consolidation into the new asset management company, while the other high-flyer central SOEs - such as Sinopec, PetroChina and Baosteel Group - would be left out.

The main goal of the new project would be clearing up under-performing assets, said Zhang Weikui, vice-director of Enterprise Research Institute under the State Council's Development Research Center.

Another main task would be injecting capital into needy SOEs that were of importance to the country's economy and security, such as those in the aviation industry, Zhang added. 

Cheng Wei, director of macro-strategy research department of SASAC research center, said the ultimate motive of creating such a new entity was to enhance state-owned assets management and promote industrial consolidation.

The SASAC intended to cut the number of central SOEs down to between 80 or 100 by the end of next year.