China has authorised two relatively unknown asset exchanges in Beijing and Shanghai to sell state-owned enterprises (SOEs) in an attempt to speed up the disposal of state assets, according to officials involved. Beijing's Technology and Equity Exchange had begun selling 104 companies owned by the municipal government, officials said. In addition, the four asset management companies responsible for selling non-performing loans on behalf of China's Big Four state banks signed a contract last month to post their non-performing loan portfolios at the two equity exchanges. The Beijing exchange lists NPLs with a face value of 10 billion yuan (HK$9.29 billion). This new sales channel was set up by the State Owned Assets Supervision and Administration Commission (Sasac) in October after the third plenum of the 16th Communist Party Congress. Sasac director Li Rongrong recently said state firms might transfer ownership through mergers and acquisitions with non-state and foreign firms - exactly what the unofficial exchanges are designed to facilitate. Dong Tao, China economist at Credit Suisse First Boston, said the slow pace of initial public offerings by Chinese companies was one factor forcing authorities to find new ways of selling off state enterprises. China has also been seeking to offload about US$500 billion in bad loans from the banking system through auctions organised by the asset management companies. However, the paucity of buyers and the sometimes overly complex auction system has slowed the process to a crawl. For example, China Huarong Asset Management has organised an auction of US$3 billion in loans that will require investors to bid on 22 separate tranches. Selling through informal exchanges could help speed the process by providing a central system for listing state assets and posting the prices buyers are willing to pay for them. 'If an SOE wants to sell a stake, we share this information with the market. This is the first step. Then they negotiate,' said Zheng Ziqiang, assistant to the president of Beijing's Technology and Equity Exchange. The exchange, which is owned and operated by the Beijing government, was relatively inactive until March, when a number of investors acquired it and set it up as a for-profit operation. The exchange receives a 20 per cent commission on completed deals and expects to break even this year on revenue of two million yuan. It is now handling the sale of SOEs in the capital with potential buyers from the United States, Taiwan, Hong Kong and Singapore. Next month, it will hold its first China State Owned Assets and Equity Exchange Fair. Of the 400 companies posted on its screens, about 60 per cent are technology companies, with the remainder consisting of non-performing loans and SOEs. The exchange is authorised to sell majority stakes in SOEs to private, foreign or other state companies. Jia Xiaoliang, deputy director-general of Sasac's Bureau of Enterprise Reform, said there was no fixed percentage - or upper limit - on sales transactions. Fang Xinghai, deputy chief executive of the Shanghai Stock Exchange, said the exchanges were a logical extension of the privatisation programme in China. 'This is an exit route for SOE shares,' he said. 'It's obviously a better way than the bilateral negotiations that were previously favoured.'
