China’s state-owned firms to face more bankruptcies

DAVOS: China’s state-owned enterprises will face more mergers and bankruptcies as the government overhauls the lumbering state sector, the head of the country’s state asset regulator said.
In a rare interview with a foreign news outlet, Xiao Yaqing, chairman of the State-owned Assets Supervision and Administration Commission (SASAC), stressed Beijing’s commitment to streamline its bloated and debt-ridden state-owned sector and create conglomerates capable of competing globally.
China embarked on a revamp of its state-owned enterprises (SOEs) in 2015 to tackle rising corporate debt and also to make them more profitable and responsive to market forces.
It has claimed progress in its SOE restructuring through mergers, reductions in excess capacity, the relocation of workers, closure of “zombie” firms, and implementing a controversial scheme under which debt is converted into equity.
“Our wish is for them to be bigger, stronger and more efficient.
And this is what they’re about to be in the future,” Xiao said on the sidelines of the World Economic Forum in Davos on Tuesday.
He said the focus would be to strictly separate government functions from the SOEs’ business operations, though it was vital for the ruling Communist Party to retain control of the state sector during the process.
The number of enterprises administered by the central government has been reduced to 98 from 117 in 2012.
The merger of China’s top coal miner, Shenhua Group Corp and China Guodian Group Corp among the country’s top five state power producers, created the world’s largest power utility worth $278 billion.
When asked about further SOE consolidation, Xiao said the number of central government-owned companies would continue to decrease through mergers in “a voluntary process”, though the SASAC did not have a target for this reduction.
Xiao also pointed out the importance of the relocation of workers during the reforms, saying that SOEs, with the help from local governments, ought to create programmes to absorb laid-off workers after consultation with them.
“We do not want them to be laid off or just fired in this process,” he said.“We need them to be allocated into new positions.”
Enterprises owned by China’s central government reported robust growth in 2017, with total profit up 15.2 per cent, the fastest in five years.
In the interview, Xiao attributed the rebound of SOEs’ profitability to China’s stable economic growth, rising commodity prices and ongoing state-sector reforms.
“We reduced a lot of ‘zombie enterprises’.Now the management efficiency of the companies is significantly improved,” he said.
The Communist Party’s People’s Daily reported this month that central government-owned SOEs had met their target of shutting 1,200 zombie enterprises by the end of last year.
Moreover, state-owned enterprises will target coal capacity cuts of 12.65 million tonnes in 2018, and will also aim to reduce excess capacity in coal-fired power, non-ferrous metals, shipbuilding and construction materials.— Reuters