State switches to equity markets

PUBLISHED : Wednesday, 18 May, 1994, 12:00am
UPDATED : Wednesday, 18 May, 1994, 12:00am

CHINA'S lumbering state sector is switching from relying on loans from supra-nationals and direct foreign investment to sourcing funds from global equity markets.

The remarks, made in Hong Kong yesterday by Liu Hongru, chief of the China Securities Regulatory Commission, come as the moribund enterprises face the worse credit squeeze in years.

There are concerns that the enterprises, considered the backbone of the economy, will be the biggest obstacle to the country's economic reform programmes.

Mr Liu said that issuing shares directly to foreign investors by enterprises was a more flexible way of sourcing funds and could supplement loan financing.

''This will allow foreigners to take a longer view on our economy and help enterprises transform their operation mechanism,'' he told a seminar on raising capital in the United States for mainland and Hong Kong enterprises.

The US has been designated as the second capital market for raising funds by Chinese state-owned enterprises after Hong Kong.

Mr Liu said the commission would not relax its standards to allow fast listings on US exchanges.

He said there were five Chinese enterprises among the second batch of companies short-listed for listings in the US.

''The enterprises will be listed only when [they are] up to scratch. We aim for quality rather than speed,'' Mr Liu said.

The five companies are China Eastern Airlines, China Southern Airlines, Shandong Huaneng Electricity, Huaneng International Power Development and Tianjin Steel Pipe.

''It is imperative to select some enterprises for direct listing in the US because it is the world's biggest capital market, which has the highest liquidity and provides the best protection for shareholders,'' he said.

Mr Liu said the five companies were now doing listing preparation work.

''Some have named underwriters, accountants and lawyers, while some have completed assets and capital verification,'' he said.

The enterprises had been channelling funds from international organisations such as the World Bank, and from direct foreign investment, including joint ventures.

However, Mr Liu said: ''Under the current situation, it is not sufficient just to rely on these various foreign investments.'' He was speaking in the context of an economy in which substantial capital was needed in fundamental industries such as energy, transportation and infrastructure.

''The domestic capital market cannot meet the country's massive demand for funds,'' he said, explaining the need to raise foreign capital through different channels.

The experiment of listing state-owned enterprises abroad had proved a success, he said, with $11 billion being raised for the first batch for listings in Hong Kong.

''On the basis of the results of these experimental listings, it can be concluded that the responses of the global securities markets and international investors have been overwhelmingly good,'' Mr Liu said.