Tue, Sep 26, 2017 - Page 10 News List

China to tighten SOE finance controls

WIN-WIN?The Chinese government’s rumored decision would aim to both increase supervision over state-owned enterprises’ finances and help bolster their efficiency

Bloomberg

China is to create a centralized financing company to oversee about US$304 billion of funds held by the country’s state-owned enterprises’ (SOEs) finance units, allowing the government closer supervision of SOEs’ borrowing and investments, people familiar with the matter said.

The plan, approved by the Chinese State Council or Cabinet, will increase the government’s ability to supervise the non-financial central SOE finance companies’ investments, giving the entity a fuller picture of how these companies are using funds, according to the people, who asked not to be named because the plans have not been made public.

Non-financial, central SOEs have their own finance units, which offer various products and services such as deposits and loans, and the new entity could facilitate those efforts.

The plan would assist regulators by directing some 2 trillion yuan (US$302 billion) of funds held by the non-financial SOEs through the new company, meaning that they could monitor the flow through only one financing company rather than dozens.

Many details about the new entity were not immediately clear, such as who would control it, how much regulatory and oversight authority it would have, and how it might conduct external financing on behalf of the SOEs.

The aim is to boost efficiency in the US$20 trillion state sector, in line with a government campaign to reduce the companies’ debt, the people said.

While the centralized finance company would have a regulatory oversight role, the SOEs would retain control over the funds, the people said.

China Chengtong Holdings (中國誠通) and China Reform Holdings (國新基金), two companies facilitating the nation’s plan to overhaul the state sector, have been tasked with setting up the centralized company, two of the people said.

It would coordinate business cooperation between companies, cut costs, reduce debt and promote other financial ties between state firms in and outside of China, they said.

The plan applies to companies regulated by China’s State-owned Assets Supervision and Administration Commission, but not to banks and brokerages that are overseen by other agencies.

There was no immediate reply to faxes sent to China Chengtong and the State Council Information Office seeking comment. An email sent to China Reform’s press office also went unanswered.

The move, which is intended to make it more efficient for SOEs to borrow money and to cut operational costs, coincides with Beijing’s efforts to crack down on debt in the state sector to reduce risks to the broader economy.

At a key financial meeting in July, Chinese President Xi Jinping (習近平) said deleveraging at SOEs was of utmost importance.

Some of the SOEs, such as China Mobile Ltd (中國移動) and PetroChina Co (中國石油天然氣), are among the world’s biggest companies. State-owned enterprises command about 40 percent of China’s industrial assets and create nearly 20 percent of urban employment.

Nearly all state companies, from China Petrochemical Corp (中國石油化工) to China Baowu Steel Group (中國寶武鋼鐵), have their own finance companies. State companies have hundreds of subsidiaries across the country and dozens of listed entities in Hong Kong and Singapore with tens of billions of dollars in market value.

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