State enterprises given 2017 deadline to limit losses
BEIJING: China has set a two-year deadline for loss-making enterprises owned by the central government to improve their performance, with firms that suffer losses for three straight years liable to be shut down, while sending a signal to firms controlled by provincial governments to step up its act.
“By the end of 2017, a significant drop in losses is to be expected for enterprises whose losses are incurred from operations,” the State Council’s State-owned Assets Supervision and Administration Commission (SASAC) said yesterday.
SASAC pledged to “close, suspend, combine, divert, peel off and reorganise” lossmaking enterprises in industries suffering from overcapacity that cannot meet state standards for energy consumption, environmental protection, quality and safety.
Enterprises should leave the market through asset reorganisation, transfer of property rights, closure or bankruptcy if they suffer three consecutive years of losses and their business is not in line with the direction of structural adjustment, the statement added.
China is overhauling inefficient staterun companies to bolster an economy headed for its slowest growth in 25 years. The plan aims to cut out sectors plagued by overcapacity while creating globally competitive firms in high-value sectors such as aerospace and advanced rail technology.
In June, China completed the merger of two of its largest train equipment companies to form CRRC Corp, seeking greater economies of scale to compete for contracts globally.
“That’s a very explicit statement, but the real big issue lies with local-level state enterprises, not necessarily the national ones supervised by SASAC,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings in Hong Kong. “SASAC might take the lead here, and it’s a welcome move, but we need to see much more action at the provincial level to close down excess capacity.”
SASAC supervises and manages stateowned assets that are under the supervision of China’s central government, while the various provinces and cities in the world’s second-largest economy manage companies through their own similar agencies.
China Cosco Holdings and China Shipping Container Lines, its two major shipping companies, are to form Asia’s largest container shipping line called China Cosco Shipping Group.
Zhang Xiwu, SASAC’s vice-chairman, said the shipping groups would release merger details in the near term. He said 10 documents with guidance on reform would be released soon.
Earlier this week, China Minmetals Corp, the country’s biggest metals trader, agreed to buy China Metallurgical Group Corp, a government-owned engineering and mining group. SASAC is setting up a state-owned fund to absorb bad debt in the mining sector.
Mr Zhang said SASAC was still studying the issue of “zombie companies” including how to help them and related industries overcome their difficulties.
“Everybody knows there are two problems associated with resolving zombie companies. One is ’Where’s the money coming from?’ and two, ’Where do people go?’” Mr Zhang said at the press briefing. “If we cannot solve these two things, it’s very difficult to help the industry and companies exit.”