Thursday, 27 November 2008
Beijing Cash Injections to Shore Up SOEs
The Chinese government is set to inject 54.78 billion yuan into state-owned enterprises (SOEs) to help them weather the present financial storms. Most of the money will go to the aviation and electric power industries as they are suffering the largest losses among all industries this year.
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Beijing Cash Injections to Shore Up SOEs
By Niu Zhijing, Shanghai
26 November 2008
The Chinese government is set to inject 54.78 billion yuan into state-owned enterprises (SOEs) to help them weather the present financial storms. Most of the money will go to the aviation and electric power industries as they are suffering the largest losses among all industries this year.
The money comes from dividends of state owned shares and profits handed in by SOEs. Of the total, 27 billion yuan, about 49%, will be used to support new disbursements to key central enterprises and bolster SOE capital, 19.63 billion yuan, about 36%, will go to the reconstruction of central enterprises that suffered heavy losses in natural disasters, and the other 8.15 billion yuan, about 15%, will be used to promote the adjustment of industrial layout and structure of central enterprises.
Two airlines, China Southern and China Eastern, may each get 3 billion yuan from the government. The State Grid may gain subsidies for natural disasters, but the detailed amount is still unknown.
The State-owned Assets Supervision and Administration Commission of the State Council, administrator of all Chinese SOEs, declared that these funds are well suited to the country’s important macroeconomic policies issued recently and will help central enterprises resist the influence of the global financial crisis and survive the hard times.
SOEs are still China’s major profit makers. But in the first ten months this year, operational income of SOEs and enterprises controlled by the government dropped steadily and even saw negative profit growth for three months. Profit fallback in the electric power and petrochemicals industries has worsened. In the first ten months this year, profit of central enterprises totalled 826.01 billion yuan, 14% down year on year, while profits of SOEs under local governments totalled 400.03 billion yuan, an increase of 6.1% year on year. Tax payable by SOEs has also fallen back for three straight months.
The main cause has been increasing raw material costs and the economic slowdown due to global recession. Total losses for the three biggest Chinese airlines, Air China, China Eastern, and China Southern, reached 5.25 billion yuan in the first three quarters this year. The net assets of China Eastern now total only 1.139 billion yuan, less even than the price for a plane! Deducting 1.509 billion yuan of intangible assets, China Eastern is already insolvent.
Some of the losses of the three airlines arise from playing around with aviation kerosene futures transactions. According to latest figures released by China Eastern, the decline in oil prices on the international market has caused the company to suffered 1.83 billion yuan book loss in a hedge transaction.
Vice-Premier Zhang Dejiang, who oversees China’s industry, talked with some heads of central enterprises recently. He said they should make good use of the government’s favourable policy and turn the current challenge into opportunity.
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