Bottom line: Beijing should launch an aggressive campaign to privatize state-owned enterprises, which could cause some short-term pain but will ultimately put the economy on a more stable long-term footing.
Profits tumble at SOEs
The latest profit reports for big state-owned enterprises (SOEs) are coming in for the first 2 months of the year, and the picture isn’t pretty and even looks quite worrisome for China’s thousands of state-owned enterprises (SOEs). New data published late last week showed profits for SOEs tumbled 14.2 percent in January and February combined, as they continued to be plagued by problems like overcapacity and weak demand due to China’s slowing economy.
But one of the biggest problems facing these companies, and one that threatens their long-term survival, is their failure to act commercially, a legacy of China’s planned economy that saw big SOEs historically function as tools for executing government policy. Such a tendency is what, for example, drives steel makers to continue producing at full throttle even when every ton of product they sell adds to losses due to the sector’s huge overcapacity. Read Full Post…
Bottom line: Beijing should make investigators be more transparent when making publicly visible moves like detaining company executives, or risk financial turmoil when markets are left to try and guess what’s happening.
Transparency needed when big execs are detained
Beijing’s anti-corruption campaign took an unexpected turn into the private sector last week with the sudden disappearance of Guo Guangchang, one of China’s richest men and chairman of one of its most successful private conglomerates, Fosun Group. Word of Guo’s disappearance sparked widespread speculation and also some panic among investors in his dozen listed companies, forcing the group to scramble for answers to avoid financial chaos.
The case highlights the need for greater transparency by anti-graft investigators as they dig deeper into China’s corporate realm to root out corruption that has become all too common in the nation’s business culture. Read Full Post…
The following press releases and media reports about Chinese companies were carried on August 5. To view a full article or story, click on the link next to the headline.
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eLong (Nasdaq: LONG) Receives “Going Private” Proposal from Tencent (PRNewswire)
Alibaba Group (NYSE: BABA) Appoints Michael Evans as President (Businesswire)
Qunar (Nasdaq: QUNR) Achieves Record Daily Hotel Room Nights Stayed (GlobeNewswire)
Toyota (Tokyo: 7203) Says Not Optimistic on China Profitability (English article)
PetroChina (HKEx: 857) Wins Dismissal of Securities Lawsuit in US (English article)
China’s anti-corruption campaign has accelerated into the private sector over the last few weeks, with shares of sportswear retailer Anta (HKEx: 2020) and online video provider LeTV (Shenzhen: 300104) both tumbling after reports emerged that their top executives might be under investigation for illegal activities. In both cases the worries later appeared to be unfounded, but other signals have indicated the movement is indeed creeping into the private sector. Read Full Post…
The following press releases and media reports about Chinese companies were carried on September 26. To view a full article or story, click on the link next to the headline.
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China Mobile (HKEx: 941) Expands Number Portability Pilot To 5 Provinces (Chinese article)
China Detains 2 Executives At Embattled Business Newspaper (English article)
Alibaba (NYSE: BABA) To Invest In Merged BesTV+Oriental Pearl Media Firm (English article)
Master Kong (HKEx: 322) Prepares To Sue China Business News Over False Story (Chinese article)
PetroChina (HKEx: 859) Exec Exposed For Buying Luxury Goods With Company Fund (Chinese article)
If telecoms equipment giant Huawei was trying to convince the world it’s not closely linked to Beijing, then its new campaign to root out internal corruption certainly looks like a bad strategic move. Of course I’m being just slightly facetious, as any good corporation should always be vigilant against corruption within its workforce. But in terms of public perception, this new internal anti-corruption campaign seems strikingly similar to the much larger and high-profile campaign being waged throughout China by the 2-year-old administration of President Xi Jinping. Read Full Post…
Everyone is getting quite excited these last 2 days about word that Beijing will soon launch a major new sell-down of its stake in many of China’s largest state-owned enterprises (SOEs), in a bid to breath new life into these bureaucratic behemoths. The news certainly looks like a positive sign all around, providing an exciting new opportunity for investors who would prefer to own major companies that behave more commercially rather than the current group that take their orders from Beijing.
Equally important, the shift could help many of these state-run giants to shed their “SOE stigma”, which often carries connotations of state-control, bureaucracy and political agendas. Such a shift could fuel a new wave of outbound M&A by some of these giants, whose major global purchases often raise suspicions among host governments who currently view such SOEs as tools used by Beijing to execute its political goals. Read Full Post…
The accelerating anti-graft campaign in China could be entering a new phase, with word that Britain’s anti-corruption watchdog has formally launched an investigation into jet engine maker Rolls-Royce. The move marks the latest investigation of a major foreign firm related to its China operations, as Beijing itself engages in an increasingly aggressive campaign to root out corruption at state-owned enterprises. While this latest investigation is certainly a welcome development in the drive to clean up China’s business environment, the acceleration of the broader campaign could also create major disruptions in the country’s business world over the short-term. Read Full Post…
China’s ongoing anti-graft sweep continues to gain momentum as we approach the end of the year, with major new developments in the headlines from British drugmaker GlaxoSmithKline (GSK) (London: GSK) and domestic energy giant PetroChina (HKEx: 857; Shanghai: 601857; NYSE: PTR). In the former case, GSK is taking the revolutionary step of saying it will no longer pay doctors anywhere in the world to promote its products. In the latter, media are reporting that another top PetroChina official has been detained and resigned as he assists with ongoing investigations of corruption at the state-run giant. Read Full Post…
The following press releases and media reports about Chinese companies were carried on December 18. To view a full article or story, click on the link next to the headline.
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Amazon (Nasdaq: AMZN) Cloud Web Services Enters China In New Tie-Up (Chinese article)
In a development that many would say was widely expected, Beijing’s recent campaign to root out official corruption at state-owned companies is spreading deeper into the system, with word that an executive from grocery chain operator Lianhua Supermarket (HKEx: 980) is under investigation. I don’t normally follow Lianhua, as it’s a distinctively second-tier company that operates unimpressive grocery stores that are usually mostly empty whenever I happen to shop there. But that’s exactly why this particular probe is interesting, as it shows that the anti-corruption campaign is moving beyond the high-profile biggest state-run companies that have been targeted so far and into the smaller firms that populate the big majority of China’s corporate landscape. Read Full Post…
