| BEIJING, March 4
BEIJING, March 4 China's decision last month to
sell a stake in a subsidiary of Sinopec Corp
signals more privatisation of its bloated state-owned
sector will take place soon, with plans likely to be discussed
at this week's parliament session, officials and experts said.
Sinopec, Asia's biggest oil refiner, said on Feb. 20 that it
would sell up to 30 percent of its marketing arm, which owns
more than 30,000 petrol stations, in a multi-billion dollar
asset restructuring. No details have been provided.
It was China's first announcement of a major restructuring
since President Xi Jinping unveiled sweeping reforms of the
socialist economy at a Communist Party conclave last November.
He promised to encourage more private participation in
state-owned enterprises (SOE's), which include some of the
world's largest companies.
"Reform towards fully mixed ownership will increase, in such
areas as petroleum and petrochemicals, power and
telecommunications," said Zhang Chunxiao, an adviser at the
State-Owned Assets Supervision and Administration Commission
"State-owned enterprises will look to attract high-calibre
strategic investors, including foreign capital," he told
SASAC is a ministerial-level body run by China's cabinet and
is directly responsible for 113 state-owned companies, including
Sinopec, four giant banks, oil giants PetroChina and CNOOC, and
China Mobile, which operates the world's biggest
network of mobile phone users.
Beijing will however retain control of critical lifeline
industries, including enterprises related to national security
and key economic sectors - upstream energy, transportation and
ports, Zhang said.
Policies governing state-owned enterprise restructuring and
the introduction of private investment will be discussed at the
annual session of China's parliament that begins on Wednesday,
state media reported.
Over the last 20 years, China has gradually
introduced private investment and Western-style management to
its state firms and turned the country's biggest government
conglomerates into stock market-listed shareholding firms.
Beijing's central government-controlled SOE's owned 378
subsidiaries trading on global stock markets by the end of 2012.
Provincial and local government firms had listed another 681
companies by the end of last year.
Critics say the sheer size and market dominance of big state
firms creates a drag on the economy through vast opportunities
for waste and corruption. State-owned companies enjoy
privileged access to low-cost credit and draw more than 35
percent of total bank loans.
The stake sale in the Sinopec subsidiary is significant
since it will offer investors a chance to enter China's highly
controlled and sprawling downstream fuel market.
It remains unclear whether Sinopec would divest the stake
through a trade sale to investors or through an initial public
offering on the stock market.
The possibility of bringing in a foreign strategic investor
like Royal Dutch Shell or BP Plc, which already
operate retail joint ventures with Sinopec and PetroChina, also
can't be ruled out, analysts said.
"This time (private) capital is being brought into
production and management," said Chen Yongjie, deputy
secretary-general of the China Center for International Economic
Exchanges, a well-connected think-tank in Beijing, adding that
the model was likely to be extended to other stake sales.
Provincial and local governments which control the vast
majority of the country's more than 140,000 SOE's are also
getting into the act. In recent weeks, local governments in
several provinces, including Guangdong and Shaanxi, have said
they will seek more non-state investors.
In the southern coastal city of Zhuhai, the government is
seeking strategic investors to buy a big minority stake in
Zhuhai Gree Group, a major household appliance maker.
Besides making SOE's more responsive to market forces, such
privatisations could help unlock enormous hidden value.
The marketing and distribution division of Sinopec, which
also engages in oil and gas exploration and production, refining
and chemicals production, accounts for nearly half of the
group's annual total operating profits.
The segment posted an unaudited operating profit of 27.03
billion yuan ($4.46 billion) in the first nine months of 2013,
down 10.5 percent year on year, partly because of a slowing
Sinopec shares in Hong Kong have gained more than 11 percent
since it announced the divestment.
China's biggest state-owned industrial companies and
conglomerates reported main business income of 25.8 trillion
yuan ($4.20 trillion) last year, about one-quarter of the total
for all industrial companies. State enterprise assets amounted
to 91.1 trillion yuan ($14.83 trillion).
However, much more needs to be spelled out before private
investors will be confident of any privatisation scheme,
analysts caution. Corporate governance at state-controlled joint
ventures remains problematic and management often puts national
interest ahead of minority shareholders.
Private investors also may be wary of the risk of
nationalisation. The government set off howls of protest when it
forced out private investors from the oil fields in northern
Shaanxi province in 2005, and coal mines in neighboring Shanxi
province four years later.
"A lot more is needed. (Incremental and marginal
privatisation) in of itself doesn't do much," said Arthur
Kroeber, head of research at Gavekal Dragonomics, an independent
global economic research firm.
"I find it hard to imagine a substantive privatisation of
these big central SOE's. In that context, I find it hard to
imagine how bringing in marginal outside investors will have a
fundamental impact on the behavior of these companies.
"There needs to be a break with the traditional joint