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30 September, 2016
Ten of China's state-owned enterprises (SOEs) have launched the country's largest private equity fund to finance SOE restructuring, China's State Council has said.
The 350 billion yuan (£40 billion) China Structural Reform Fund was initiated by China Chengtong Holdings Group, a state-owned asset-operating company that has been involved in reorganisation of SOEs. The fund will be managed by the State-owned Assets Supervision and Administration Commission (SASAC), the State Council said.
The money will be used for mergers and acquisitions, industrial upgrades and innovation, the report said.
Initial capital of 131bn yuan was raised by the ten state-owned companies, which include China Mobile, China Railway Rolling Stock, and China Petroleum & Chemical. China Chengtong is taking the lead, the State Council said.
China Chentong was one of two SOEs chosen earlier this year for a pilot reform programme aiming to improve the management of government assets. It is involved in asset management, logistics services, forestry, and pulp and paper products. The group owns more than 100 subsidiaries, and has businesses in tourism and cultural and packaging industries. The firm was to be reorganised into a state-owned asset-operating firm, according to reports.
Xiao Yaqing, head of SASAC, said the fund will "finance supply-side structural reforms to help pave a sustainable growth path by means of SOE upgrades and industrial consolidation", the State Council report said.
"There are some heavy industry sectors that have too much capacity, and there are some others with capacity in short supply. That’s because sales of lower-end products remain sluggish, while we are not able to meet the demand of high-end goods," Xiao said.
The fund will help move state capital "up the value chain" and expand the supply of high-end products, the State Council said.
China published guidelines on SOE reform in November 2015.
Under the new guidance, China's state capital will no longer be invested in some SOEs, while others will be restructured or upgraded, state-owned news agency Xinhua reported. The released capital will be invested in major infrastructure, "forward looking and strategic" industries, in the industrial supply chain, and in "firms with strong competitiveness", it said.
In September the Chinese government released guidelines on SOE ownership and salaries. SOEs would be divided into two categories, for-profit entities and those dedicated to public welfare, it said at the time.
For further information, please contact:
Ian Laing, Partner, Pinsent Masons
ian.laing@pinsentmasons.com
