Beijing’s rescue fund to shift investments to private companies now that it’s saved state giants

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A Chinese worker welding at a shipbuilding yard in Chongqing. The China State-owned Enterprises Restructuring Fund has spent 8 per cent of its capital since last year making the nation’s state-owned behemoths more efficient. Photo: AFP

Published: 8:33pm, 20 Oct 2017Updated: 10:37pm, 20 Oct 2017

The Chinese government’s 350 billion yuan (US$53 billion) restructuring fund, set up to keep the nation’s ailing state companies afloat, will broaden its investments to privately owned enterprises as it switches its attention towards earning a profit.

“The fund was created to help state enterprises cut their debt, introduce mixed ownership and modern corporate governance, and make state assets more liquid,” said Ma Zhengwu, chairman of the Chengtong Group, picked by the government to lead the China State-owned Enterprises Restructuring Fund. “Several projects are already in the pipeline. We are making arrangements to [invest in] some smart manufacturing firms, including both state-owned enterprises and private companies.”

China Unicom has been the highest profile case study to date for the restructuring fund, set up to keep China’s SOEs afloat. Photo: Reuters

The switch in focus underscores the success of President Xi Jinping’s so-called supply side economic reform, which uses a mix of asset swaps, mergers and management restructuring to cobble inefficient, debt-laden behemoths into globally competitive companies.

The fund, created in September 2016, appears to be paying dividends, as the aggregate profits of the country’s state-owned companies jumped 44.2 per cent in the first seven months of this year, according to the National Bureau of Statistics.

“More than 50 billion yuan worth of agreements have been signed, and more than 30 billion yuan have been spent,” Ma said in a media interview in Beijing during the Communist Party’s twice-a-decade meeting, which will select the its leadership ranks for the next five years.

State enterprises, the legacy holdovers from the country’s journey from socialist central planning towards a market economy, had been among the biggest policy challenges for Chinese policymakers, as they must balance market impulses with the need to protect jobs and ensure social stability.

Total liabilities among state enterprises ran as high as 166 per cent of the entire Chinese economy as of the second quarter, nearly double the level from a decade ago, according to state statistics.