Since the state-owned Assets Supervision and Administration Commission of the State Council (SASAC) was set up five years ago, enterprises directly controlled by the central government of China have made remarkable achievements in operational performance and are getting a lot of attention from investors. Over the past three years, the main business revenue and total profits of the large enterprise groups and their subsidiaries under the direct control of SASAC rose by 78.8% and 140% respectively. Compared with many local state-owned and private enterprises, the central enterprises are more like an accurate indicator of China’s economic development. In 2006, the main business revenue of central enterprises exceeded RMB8 trillion (US$1.06 trillion), and total profits reached RMB754.7 billion (US$99.7 trillion), accounting for 85% of the total profit of mega state-owned enterprises. In 2005, that percentage was 65.9%. The total amount of assets of central enterprises reached RMB12.2 trillion (US$1.61 trillion), continuing a trend of annual increases.
But is the high rate of growth in performance of the large central enterprise groups a unique phenomenon at a special period or is it due simply to improvements in competitiveness? The responses from the market vary considerably. Some scholars point out that state-owned enterprises in competitive fields were already�growing slowly, indicating that without preferential policies, the state-owned enterprises would have no special competitive advantage. They argue that central enterprises are part of the foundation of the national economy and that the total market size will increase in conjunction with China’s GDP growth. Therefore, as long as the central enterprises maintain their positions in these industries, their performances could attain simultaneous growth.
Nevertheless, the overwhelming percentage of central enterprises in market share, scale of assets, profits and investments has been causing imbalances in the group development of some domestic enterprises in some fields.
Since 2004, enterprises directly controlled by the central government have continued to integrate; their total number has fallen from 196 to 159, and could be reduced to as low as 80 in the next four years. This integration further concentrates resources on big enterprise groups with competitive advantages. In 2006, Chinese mega-enterprises like China Aluminum Co., Ltd. and Sinopec started to integrate their listed subsidiaries. This year they will carry out more intensive integration.
SASAC says that central enterprises must maintain control over several industries including the military, power, oil, and telecommunications. In fields with scattered resources and distinct homogeneous competition, such as the military and power industries, central enterprises can enhance their operation efficiency through integration, while the largest players in the oil, telecom, coal and shipping fields will probably redistribute their spheres of influence according to their main businesses.
In the past three years, the reorganization of central enterprises was undertaken 38 times. The central enterprises will shoulder heavy workloads in reducing this number over the next four years; on average at least 15 enterprises need to be integrated each year. Currently, 137 central enterprises have published their major businesses, which will become the strategic track for central enterprise integration.
According to statistics, stiff competition has slowed the profit growth rate of enterprises owned by the central government. Their profits for 2004 and 2005 rose by 57.6% and 30.7% respectively, and the total fixed asset investment in 2006 exceeded RMB1.3 trillion (US$0.17 trillion), an increase of 28% over the previous year. But the enterprise profits only grew by 18.2%. The expansion of enterprise assets could impede the profit growth rates, while scale expansion and business diversification make competition among enterprises increasingly conspicuous.
The growth rates of both fixed asset investment and exports of central enterprises are higher than the average level of domestic enterprises. In 2006, the total export volume of central enterprises increased by 40% over the year before, 27% higher than the national average. However, central enterprises in the heavy chemical industry are more sensitive to international raw material prices and environmental pressure.
In 2006, 13 central enterprises made it onto the Fortune Global 500 list in terms of sales; however, the number was far from the SASAC’s goal of getting 30-50 enterprises on the list. Each index of central enterprises, such as overall financial indexes, tax turnover, return on net assets and the value-sustained and value-added rate of state-owned assets continues to show stable, sizable increases. But in order to achieve the preset goal, capital expansion is inevitable.
