SOE Equity Transfer Raises Doubts from Economists

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Last updated at: (Beijing Time) Monday, September 02, 2002

SOE Equity Transfer Raises Doubts from Economists

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The Shenzhen government of south China announced on August 28 the transfer of part of the equity of its five State-owned enterprises in the fields of energy, water supply & treatment, natural gas, transportation, and food respectively, to foreign holders through international bidding, with the detailed plan having come out.

Since these five enterprises all concern the city's economic lifeline and the equity percentage to be transferred is rather big, some as high as 70 percent, the government's action has roused doubts and worries from some economists.

Public interests can not be neglected

According to the bidding plan revealed by media, 25 percent of the equity in the energy group company will go to foreign holders, while the percentage of equity controlled by foreign investors in water supply-&-treatment, gas, public transportation group Co. Ltd. will stand respectively at 45, 24 and 45 percent.

The foodstuff corporation will offer totally 70 percent of its equity to two foreign investors, with one holding 30 percent, the other, 40 percent.

In addition, the gas firm will also transfer 16 percent of its total shares to a domestic investor.

Professor Cao Heping, vice-president of the institute of economy under Peking University raised two queries about the city's equity transfer plan during an interview.

Firstly, since these State-owned enterprises cover the fields of energy, water, gas and transportation and provide public products that concern the national economy and people's livelihood as well as the interests of the public in the entire region, can the local government's equity transfer plan represent the interests of Shenzhen citizens? Under normal procedure, the government should at first held a public hearing, then the plan must be examined and approved by the local people's congress.

Besides, since this is the first ever large-scale equity transfer from the State to foreign holders in the city, the plan must be submitted to the National People's Congress.

Secondly, although the Shenzhen government could through the bidding get back a large amount of capital in a short time and do more things for local people, will it lose its independence in its future public policy decision-making, since its major enterprises are controlled by foreign capital? This is a question of how to balance long-term and short-term interests.

The Shenzhen government claimed that the equity transfer is aimed at better preservation and increment of the value of State assets and collecting money for the renovation of large municipal works. Regarding this, professor Cao said that there are many ways for the purpose, such as introducing advanced technology and management.

Besides, according to the local government, these five enterprises are selected out for their "relatively good assets quality and financial state, clear property rights and relations between creditors and debtors, a fairly complete corporate administration structure and an internal management system". So these enterprises themselves should be able to conduct the preservation and increment of the value of assets. Besides, if they lack money, they can also pool funds through listing of shares, and not necessarily transferring stock rights to foreigners.

Equity transfer requires equal treatment for domestic and foreign firms

It is common in areas such as Hong Kong to transfer equity of capital-construction enterprises to private businesses, for through which the local government can retrieve a large amount of funds to start other undertakings, Zhang Jun with the Market Institute of the State Council Research & Development Center told PD reporter, but what is important is being fair to domestic and foreign competitors in the bidding processes. Since the five Shenzhen enterprises concern the national economy and people's livelihood and have rather good performances, domestic enterprises should not be excluded during the international bidding.

But according to the current plan, only 16 percent equity of the gas firm are reserved for domestic businesses and the rest are open only to foreign bidders. As high as 70 percent equity of the food firm will be controlled by foreign businesses, so will 45 percent of water and transportation firms. What's more, according to a Shenzhen official, the possibility for transferring more equity to foreigners in light of the development and change of the situation will not be ruled out in the future.

By PD Online Staff Member Li Heng

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