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News Analysis: Overseas Listing Pushes China's SOEs Reform
The recent listings of China UNICOM and China Petro in Hong Kong and New York have caused a stir both within and outside the industries. But while most people are adoring the big money that has been raised, a few analysts are thinking of something even bigger: the reform of China's State-owned enterprises (SOEs).
According to Xu Xiaonian, a senior researcher at the China International Capital Co. (CICC), the significance of overseas listings is not raising funds as presumed by most people but pushing the reform of SOEs.
He further claimed SOE reform other than attracting foreign capital was the major motivation of the government when it approved the first overseas listings in the early 1990s.
"This remains true today," Xu said, adding that that overseas listings have become an important way and force to push SOE reform, the biggest economic sphinx before the Chinese government.
China International Capital Co. is China's first investment banker and the only one with foreign equities. Prominent global financial services firm Morgan Stanley Dean Witter has a 35 percent stake in it.
The company has been playing a major role in the overseas listings by China UNICOM, China Petro and other Chinese firms. Noted Chinese economist Wu Jinglian seems to share Xu's opinion. Speaking at a recent conference in Beijing, Wu said the overseas listing of China Petro is not only for raising funds, but to transform it into a company that has a modern enterprise system in line with international practice and could cope with the challenges of the market.
He further said China Petro's successful IPO (initial public offering) is the result of decisive corporate restructuring and a strong commitment to its investors, which would be a good model for other large SOEs to follow in their reforms.
CICC's Xu Xiaonian noted that if it was for the pure aim of raising funds there would be no need for Chinese firms to list their stocks overseas, because Chinese citizens have 6 trillion yuan in savings deposits to buy these stocks, not to say that the costs of overseas listings are much higher than domestic listings.
He pointed out businesses in China are greatly different from their overseas counterparts. While the latter has maximized profits as their sole goal of operations, Chinese businesses shoulder more responsibilities to their societies, which often demands the sacrifice of efficiency.
SOEs certainly could list their stocks in domestic stock markets. In fact, a majority of China's listed firms are shareholding companies transformed from SOEs.
But Xu said because China's stock market is far from mature in regulating listed firms and protecting investors' interests, many transformed SOEs regard the market as a mere financing tool and failed to carry out true market- and investor-oriented reforms.
On the other hand, overseas stock markets are much better in this regard. Hence, SOEs are forced to carry out reforms in line with the demands of the markets and investors before their listings.
Take China Petro as an example, first it had to sort out its assets and debts, change its accounting system in accordance with international practices and restructure its corporate organizations and assets.
After its listing, the firm has to be run in line with the demands of the market and investors. It has to regularly issue information on company management and operations and put it under the supervision of investors.
The firm also introduced overseas strategic investors, independent board members and stock options for management, all of which are designed to improve management and protect the interests of its shareholders.
According to Xu, since 1993, there have been more than 100 Chinese enterprises listed on overseas market. A notable thing is that more and more transformed large SOEs are involved, some of them being vital to the restructuring of a whole industry.
In general, Xu said these SOEs are also going farther in their restructuring and reforms, which are well received by overseas investors.
The effect of overseas listings on China's SOEs reform will be felt by more people in the coming days, Xu said.
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