Concerns raised about rise in debt level
China's centrally administered State-owned enterprises (central SOEs) are expected to see more mergers and acquisitions (M&As), particularly in the fields of key strategic industries, environmental protection and shared technology platforms, domestic news site cnstock.com reported over the weekend.
M&As will for a certain period of time became the hub of the reform and development of China's SOEs, according to cnstock.com, citing a report published on Saturday by the research center under the State-owned Assets Supervision and Administration Commission (SASAC).
An expert said on Sunday that the projection came at a time when central SOE reform is well underway and the country's central SOEs are in a critical phase for grasping the drivers of growth in the future.
"Many of the central SOEs are in heavy industrial sectors such as oil, steel, coal and autos, and they have grown to a very large size, even achieving 'too big to fail' status," Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times.
"However, the modern economy compels these central SOEs to leverage their strength in scale to achieve leading status in more innovative industries via investment," Dong said on Sunday, referring to the sectors mentioned in the cnstock.com report.
Dong said that in the next stage, the task for central SOEs will be to continue to be lean and competitive while locating new growth drivers and using their strength in scale and branding.
After years of reform measures aimed at improving efficiency and shutting down chronically loss-making "zombie firms," the central SOEs have seen a brisk improvement in their competitiveness and profitability.
In the first quarter, central SOEs recorded a profit rise of 20.9 percent year-on-year to 377.06 billion yuan ($60.03 billion), SASAC said on April 16.
Also, the average debt-to-asset ratio dropped to 65.9 percent by the end of March, 0.4 percentage points lower than at the beginning of 2018 and in line with the stated goal to cut the ratio by 2 percentage points by the end of 2020.
Since the reform was launched in September 2015, high-profile mergers among central SOEs have reduced the number of such conglomerates from nearly 110 to 97, according to the SASAC website on Sunday.
Caution needed
However, Feng Liguo, an expert at the China Enterprise Confederation, said that the report by the SASAC research center does not necessarily reflect what SASAC will or will not do.
"Moving into new sectors that are different from the company's main business may happen for a small number of SOEs, but this cannot be a widespread trend," Feng told the Global Times on Sunday.
"Although there has been some success in deleveraging, the debt-to-asset ratio at central SOEs remains elevated and investing in new areas is likely to further increase the ratio," Feng said.
Also, many central SOEs have crossed into other sectors in recent years, such as energy companies making large investments in new energy, but the results have been mediocre, Feng noted.
The ultimate goal for central SOEs in the future should be higher-quality growth, as stated by the central government, Feng said.
"Central SOEs have zero advantage in exploring sectors that are utterly new," Feng warned.
