SOEs told to limit involvement in financial institutions

Updated: Jun 5, 2024 By ZHONG NAN China Daily Print
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A clerk counts yuan bank notes and US dollar bills at a branch of the Industrial and Commercial Bank of China in Huaibei, East China's Anhui province. [Photo/IC]

China's centrally administered State-owned enterprises will be prohibited from establishing, acquiring or taking new stakes in financial institutions, according to information released by the country's top State-owned assets regulator on Tuesday.

As part of efforts to enhance the regulatory framework governing their financial activities, central SOEs should refrain from participating in or increasing investments in financial institutions that offer minimal benefits to their core operations and present significant spillover risks, the State-owned Assets Supervision and Administration Commission of the State Council said in a statement.

They must strengthen their risk management and control strategies, increasingly leverage information technology for risk management and aim for prompt risk detection, early warning systems, immediate risk disclosure and swift resolution, the SASAC said.

Managers of central SOEs who cause substantial risk-related losses due to misconduct or negligence will be held accountable, it said.

Experts said that by limiting SOEs' involvement in financial institutions, the government aims to prevent financial risks from spilling over into the industrial, energy and infrastructure development sectors.

Financial businesses often face different risks — such as liquidity and credit risks, and market volatility — compared to nonfinancial enterprises. Separating these functions can help maintain stability within central SOEs, said Zhou Lisha, a researcher at the Institute for State-owned Enterprises of Tsinghua University.

By urging central SOEs to prioritize their primary industries over diversification into financial services, the policy ensures a focused allocation of resources and managerial efforts toward enhancing their core capabilities, said Zhou.

Liu Xingguo, a senior researcher from the China Enterprise Confederation in Beijing, said the latest move aligns with the broader goals of improving productivity and profitability within central SOEs.

Liu said that exporting high-end industrial goods, such as liquefied natural gas carriers and energy storage equipment, embracing digital transformation and implementing green renovation have become new growth directions for China's SOEs.

For instance, a deal for building four containerships, each with a capacity of 11,000 TEUs (twenty-foot equivalent units), was sealed between Shanghai Waigaoqiao Shipbuilding Co Ltd and X-Press Feeders, a Singapore-headquartered container shipping group, in Shanghai last week.

Waigaoqiao Shipbuilding, a subsidiary of China State Shipbuilding Corp, independently designed these tailor-made vessels. They will be equipped with an additional methanol fuel power system for future adaptation, according to the contract.

The foreign trade of Chinese SOEs reached 2.21 trillion yuan ($305 billion) in the first four months of this year, up 2 percent year-on-year, accounting for 16 percent of the country's total foreign trade value, data from the General Administration of Customs showed.

The combined profits of China's SOEs grew by 3.8 percent year-on-year to more than 1.38 trillion yuan between January and April, according to the Ministry of Finance.

The SOEs saw their debt-to-asset ratio reach 64.9 percent by the end of April, up 0.1 percentage point from the previous year, according to the ministry.

The SASAC will support central SOEs to deeply implement the innovation-driven development strategy and closely work with private businesses, according to a guideline released by the administration's bureau of social responsibility on Tuesday.

Central SOEs will continuously optimize and adjust their industrial layout and structure, modernize traditional businesses and develop strategic emerging industries, as per the guideline.

The government will encourage collaborations between central SOEs and private companies across various sectors, including industry, capital, technology, procurement and bidding. This initiative aims to foster joint development among private and small to medium-sized businesses.

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