Holding companies drive on enterprises

PUBLISHED : Sunday, 07 December, 1997, 12:00am
UPDATED : Sunday, 07 December, 1997, 12:00am

BEIJING is to ask local governments to form holding companies to help it complete its latest round of enterprise restructuring within a year.

Since the policy was adopted early this year, about a third of the mainland's 30 provincial and municipal governments, mainly in coastal regions, have already formed holding companies.

But the policy has met resistance, and some local authorities were expected to take some time regrouping state-owned firms in order to form holding companies.

The aim of the policy was to further distance local governments from the running of state-owned enterprises, a source close to the National Administration of State Property said.

It was also designed to facilitate mergers and acquisitions of state-owned companies in the same sector to improve competitiveness.

It could see all state companies in a certain sector merged to improve competitiveness.

And firms considered the most competitive in a sector, mostly listed firms, must acquire or merge with less efficient enterprises to achieve a better administration and economy of scale.

The latest example of such an acquisition was the Weifang Ocean Chemical Industries of Shandong, which, according to a Xinhua report yesterday, merged with 17 companies in October.

The result was a group with assets of eight billion yuan (HK$7.47 billion) - more than double its original asset value.

Executives and shareholders of some leading firms object to such forced acquisitions of 'poor' assets.

They argue it damages the successful businesses' competitiveness and profit growth.

The recent sluggish stock market reflected investors' worries on the policy, a fund manager said.

But Xinhua said the policy enabled competitive firms to achieve quick and cheap expansion, while profits of inefficient firms had often been boosted after being acquired.