State-owned Enterprises

Beijing denies report private investors could buy 15 per cent of state-owned firms

PUBLISHED : Monday, 11 November, 2013, 1:09pm
UPDATED : Monday, 11 November, 2013, 6:29pm

Top Chinese regulators on Monday rushed to pour cold water over an official media report that the government would allow private investors to buy up to 15 per cent stakes in state-owned enterprises. 

A spokesperson for the State-owned Assets Supervision and Administration Commission (Sasac) told the China Securities Journal that the English-language China Daily had misinterpreted Bai Yingzi, a senior official at the commission, when it reported on Monday that private investors could create private equity consortia to buy direct stakes in SOEs of 10-15 per cent of assets.

"China Daily had a major misunderstanding of Bai Yingzi's views," the paper quoted an unnamed spokesperson as saying. "The report that private capital could hold up to 15 per cent stakes in state-owned enterprises is untrue." 

Chinese leaders are gathered in Beijing this week to establish the economic blueprint for the next 10 years, and the Sasac, which administers more than a hundred of China’s biggest SOEs, has said reform of the firms is a major area of focus.

Private investors are already allowed to buy shares in major SOEs listed on domestic stock exchanges, but state-owned entities usually retain a controlling interest.

Private and state-owned firms can also create joint ventures in which the private share is higher than 15 per cent. The report cited a joint venture between privately held industrial conglomerate Fosun and state-owned China National Medicine in 2003, in which Fosun owned 49 per cent, but described it as a “rare exception”.

In June, Xinhua reported that public utilities would be opened up to private investment.

Late last month, an influential think tank, the State Council’s Development Research Centre, recommended ending state-owned monopolies in the rail, oil and gas and electricity industries as a key reform.

Other high-level officials, including former premier Wen Jiabao, have called for state-owned banks, key financial enablers of inefficient SOEs, to be subjected to more competition.

Many economists and analysts remain sceptical that China will take more substantial steps to end SOEs’ privileged market monopolies during this week’s Communist Party plenum, owing to a lack of consensus between conservatives and reformers.

The last time SOEs faced a major reform and restructuring programme was in the 1990s, when most of them were loss-making bureaucratic dinosaurs. These days, SOEs are more profitable.

A report by Xinhua published on Monday included Ministry of Finance data showing rising revenues at SOEs this year, with profits up 10.5 per cent in the first three quarters of the year.

The better performance, however, is thanks in large part to SOEs’ ability to borrow cheaply and roll over debt indefinitely.