Social Security Funds Could Play Greater Role in SOE Reforms

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China’s social security and insurance funds could soon become more active participants in the central government’s mixed-ownership reforms of state-owned enterprises. 

Chair of the State-owned Assets Supervision and Administration Commission Xiao Yaqing recently called for China’s central state-owned enterprises to continue to advance mixed-ownership reforms, as well as expand the equity financing percentage for key projects and make use of more channels for obtaining supplementary capital.

The call from Xiao coincided with SASAC giving SOE’s the green light to employ an increased range of means to reduce leverage levels, including debt-equity swaps, asset securitisation, share placements and IPO’s.

In tandem with the consolidation of large-scale government companies and a concerted deleveraging campaign, mixed-owned reforms have emerged as a key “breakthrough area” for the reform of China’s immense state-owned enterprise system.

The Chinese securities market and property rights market have in turn become a key platform for central SOE’s to advance mixed-owned reforms and obtain supplementary sources of capital.

According to official data a total of 219.91 billion yuan in state-owned assets were traded on China’s property rights market last year, with an average value-added rate of 20%, helping to bring in over 72 billion yuan in fund for the reform and restructuring of Chinese SOE’s.

Major funds companies are now using China’s securities and property rights markets to become active participants in mixed-ownership reforms of SOE’s at various levels.

A noteworthy example is the recently established Beijing Guodiao Mixed-ownership Reform Investment Fund (北京国调混改投资基金) – the first fund in China that focuses upon investment in mixed-ownership reforms, acquisitions and restructuring of SOE’s at both the local central government levels.

Beijing Guodiao will reportedly mark a departure from the previous model of mixed-ownership reforms which involved “structural change and merger, dismantling and transfer,” with its founders claiming that more innovative mechanisms will be used to expand capital sources and reduce the threshold of entry for public capital.

Securities Daily reports that some observers are now calling for social security and insurance funds to play a more active role in China’s SOE mixed-ownership reforms.

“The participation of national social security funds, insurance funds and other long-term investment funds in central SOE reforms can achieve protection and increase of value, while assisting in the promotion of SOE mixed-ownership reforms,” said one source to Securities Daily.  “It’s killing two birds with one stone.”

There are already regional precedent for the participation of social security funds in the mixed-ownership reforms of sizeable state-owned enterprises.

The Shandong Provincial Council for Social Security Fund, for example, took part in the mixed-ownership reforms of a number of province-level state-owned enterprises, providing a source of much-needed supplementary capital to the reform process, while also enabling the fund to achieve its long-term investment objectives.

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