Panjin Liaohe Chemicals (Group) Corp's Midas touch in turning around an ailing state-owned enterprise (SOE) was trumpeted as the 'Liaotong model' and an example for others in Liaoning. The provincial government hopes the model can be applied to help save other faltering SOEs. But does it always work? Panjin Liaohe, which has total assets worth 4.2 billion yuan (about HK$3.91 billion), is to play a key role in revitalising the province's chemical firms. It is to be the backbone of Liaoxi Chemical Group, which will be created under a government plan by the merger of Panjin Liaohe with two other Shenyang government-controlled firms, Panjin Ethylene Industry Co and Jinhua Chemical (Group) Liabilities Co. The 'Liaotong model' came from Panjin Liaohe's A-share listed arm, Shenzhen Liaohe Tongda Chemicals Co, which successfully used its listing proceeds to buy and help strengthen an SOE beset by short-term difficulties. The plan was mooted two years ago when the provincial government 'suggested' Panjin Liaohe use its share issue quota to take over debt-ridden fertiliser maker Jinxi Natural Gas & Chemical Plant. Panjin Liaohe agreed to what a company official described as 'low-cost expansion'. 'Jinxi has new equipment and the latest technology but was handicapped by finance costs involved in the construction phase,' he said. As in other merger cases, there were obstacles, such as the reluctance of local governments to invest outside their own sphere of influence and the unwillingness of enterprises to be swallowed by other entities. With the co-operation of two local governments, Shenyang government-controlled Panjin Liaohe proceeded with the plan and absorbed 600 million yuan of debt from Jinxi, turning it into an equity interest of 95.7 per cent. It managed to turn Jinxi around last year and inject it into Liaotong after the A-share company joined the Shenzhen market in January. Panjin Liaohe is now studying the possibility of forming an alliance with Panjin Ethylene Industry Co - which is among the fourth batch of SOEs slated for overseas listing. Panjin Ethylene, about the same size as Panjin Liaohe in total assets, is suffering from problems similar to those at Jinxi. It remains to be seen whether Panjin Liaohe can work the same magic formula on Panjin Ethylene. Panjin Liaohe's management has been reported to be less enthusiastic about the idea of taking over Jinhua on news that Jinhua was heavily burdened by a large number of retired workers. DBS Securities senior economist Chu Siu-wah said: 'It is indeed a policy of undermining the strong for the sake of supporting the weak. It remains to be seen whether the benefits will outweigh the disadvantages at the end of the day.'