MONEY MATTERS SHIRLEY YAM
Money Matters
by

Political power and corporate restructuring are closely intertwined in today’s China

PUBLISHED : Friday, 19 February, 2016, 10:08pm
UPDATED : Friday, 19 February, 2016, 10:07pm

Restructuring is another name of power consolidation. For Chairman Xi Jinping, the Year of the Ram is one of good harvest.

The telecommunication industry is most telling. This is a sector which has long rumoured to be the turf of his rivals.

In June 2014, under order of the central government, the country’s three telcom giants agreed to inject their telecommunication towers and all related assets into a new entity named China Tower Group.

The deal was swiftly completed before that year’s Lunar New Year.

The companies said this would reduce duplicating construction and bring about other savings. Academics said this would reduce the trio’s strategic importance and free them for further reform, including stake sales to private hands.

Sounds good but the reality is somewhat different.

The trio were granted stakes in China Tower in return for their asset injection. China Mobile should have a 54 per cent stake with its grandiose asset but received 38 per cent plus cash payment instead. The other two received around 28 per cent by chipping in cash as well.

The trio can’t even consolidate the asset onto their books. Their holding will be further diluted if the much rumoured listing happens.

The combination of China Tower’s 842-strong management, after a so-called open recruitment, more or less reflects these percentages.

In short, none of them controls China Tower.

The equipment would be leased back at a price subject to negotiation but no formula on the rate setting has been disclosed so far.

Other oligopolies – the oil producers - are likely to see the same fate. State media have been pitching the benefit of putting all the pipelines from the three giants into a new firm. A plan for the new entity began circulating in May.

Xi is clipping the wings of the falcons.

For decades, China’s telecommunication and oil industry is an insiders’ game. Asset and privileged knowledge are their clout against not just the consumers but also the state.

The oil producers have more than once turned down their petrol tap amidst long queues at the gas stations in order to squeeze the government for more favourable policies.

The restructuring altered the balance of power. Will the oil giants think twice before tempering with the petrol tap when they no longer have the keys to the oil pipes?

If the veterans were indeed subordinates of Xi’s rivals; it is not difficult to imagine where the loyalty of these new entities would lay.

Normally, the giants would have put up a fight.

The inefficiency of a super-monopoly should not be too difficult to argue whereas the scheme of leasing price can take ages to agree.

Yet, when this restructuring is happening side by side with a sweeping anti-corruption investigation, who would say no?

Dozens of top managers of the telecommunication and oil firms have been jailed in the past two years. Those not already arrested are undoubtedly wary. After all, it is not easy to find a clean businessman in a monopolised industry.

Unsurprisingly, it has taken only two years from the sounding out to the completion of a restructuring that involved 213.7 billion yuan worth of assets and three listed phone operators.

That’s quick.

Look at other areas where Xi’s rivals have deep-rooted influence, one can see restructuring of different shapes but the same effect – also after major corruption scandals.

Early this year, the People’s Liberation Army saw its first major overhaul in decades. Seven regional commands of the People’s Liberation Army were consolidated into five new combat zones.

The previous four military headquarters - staff, politics, logistics and armaments - were dismantled and their functions and duties are now shared by 15 new agencies under the Central Military Commission headed by Xi.

Last March, the PLA announced that 14 more of its generals were targeted in the anti-corruption crackdown. And in October, Beijing indicted Xu Caihou, a former vice-chairman of the commission, who perished in jail subsequently.

In the financial market, much publicity has been given by government media to the creation of a super regulator overseeing the central bank as well as watchdogs of the securities, banking and insurance industries.

They said a single voice would ensure better co-ordination in an ever-changing financial world.

That followed the arrest of a senior securities regulator and many top brokers for allegedly front-running the government’s market rescue effort in June. Graft fighters have been investigating the watchdogs since October.

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