Guangdong Enterprises (Holdings) (GDE), through its Shenzhen subsidiary, has acquired a controlling stake in an unprofitable listed fast-food chain as the start of a strategic plan to carve a niche in Shanghai. It has bought 41.8 per cent of Shanghai New Asia Fast Food from Shanghai New Asia (Group) and Shanghai No. 2 Textile Machinery, better known as Erfangji. GDE's biggest mainland subsidiary, Shenzhen Guangdong Industrial Investment Development Co, acquired the stake for an undisclosed sum from the two companies on March 19. Permission to disclose the deal was obtained from the Shanghai state asset authorities yesterday. Under the agreement, New Asia Group will sell 22.57 per cent of its 27.56 shareholding held in the form of legal-persons shares to Shenzhen Guangdong. Erfangji will dispose of its entire 19.23 per cent stake. Because legal-persons shares are not freely traded on exchanges and are issued only to government-backed companies or institutions, permission must be sought from government authorities before they can be sold. Analysts said although the industry was expanding rapidly in Shanghai, New Asia Fast Food had failed to capitalise on opportunities because of intense competition from foreign fast-food franchises such as Kentucky Fried Chicken and McDonald's. Many suitors had eyed New Asia Fast Food before but were spurned because they were not seen as strong or suitable. Shenzhen Guangdong succeeded because it was the biggest subsidiary of a Chinese conglomerate based in Hong Kong. Tianjin Securities deputy general manager Gui Haoming said: 'Chains selling Chinese fast food have been unable to compete with those selling Western food. 'With the change of controlling shareholder, there is the expectation a new image will emerge for New Asia Fast Food.' Analysts said the Shanghai government was concerned about the dominance of foreign brands in the city, and was hoping Shenzhen Guangdong could turn the food chain around. For Shenzhen Guangdong, the first acquisition in a listed company in Shanghai marks the start of an ambition to extend its operations into one of the fastest-growing regions in China. A company official said: 'Extending beyond our base in Shenzhen or even Guangdong is a strategic development of the company. 'Shanghai's economic potential is huge, and we are optimistic about the prospects of the fast-food business there.' Shenyin and Wanguo Securities analyst Mou Yongning said: 'If Shenzhen Guangdong injects strong assets into New Asia and turns it around, it will have succeeded in acquiring a strong back-door listing in Shanghai.'