Management of China's state-owned enterprises portfolio: lessons from international experience

Abstract

Analysis of China's portfolio of 174,000 state-owned enterprises (SOEs) (as of end-2001) reveals a clear split. China has some reasonably profitable large SOEs, many of which are centrally administered and/or publicly listed - including some on the Hong Kong and New York stock exchanges. But just over half of China's SOEs are loss-making. The great majority of loss-makers are small/medium SOEs. Locally-administered SOEs pose significant risks of a localization of benefits (e.g., wages) and a nationalization of liabilities (e.g., additional bank re-capitalization requirements for non-performing loans, un- funded pension liabilities). Thus, China's SOE portfolio poses two issues for the management of State capital. First, what should be done with the cash generated through dividends or proceeds from the sale of relatively good SOEs? Second, what should be done to contain operating losses and the creation of new liabilities from China's many bad SOEs?