As China privatises, foreigners likely to be kept out

Updated: Friday March 7, 2014 MYT 12:28:54 PM

As China privatises, foreigners likely to be kept out

SHANGHAI: As China embarks on a new wave of opening up state-dominated industries to private capital, foreign firms will largely be kept out and authorities are likely to look to institutions like domestic pension funds and insurers.

State giants China National Petroleum Corporation (CNPC), Sinopec Corp and China Railway Corporation have said they were seeking investments from private capital and also social capital, or funds sourced from pension funds and insurance companies.

“I think those are going to be the key groups that the SOEs (state-owned enterprises) will first partner up with,” said Sun Lijian, deputy director of the School of Economics atFudan University.

“It will also fit in with Beijing’s strategy to diversify investment channels for its vast, locally managed pension funds.”

The move reflects China’s desire to avoid adding further debt on to the federal government’s books while injecting much-needed cash into vital sectors, but without ceding control.

On Wednesday, Premier Li Keqiang said on the opening day of the annual parliament session on Wednesday that the fiscal deficit would be maintained at 2.1% of GDP in 2014, the same as last year.

Analysts said recent announcements by some of China’s largest state-owned enterprises to diversify ownership provides a hint of Beijing’s public-private partnership model as it opens up its petroleum, railway, finance, power and telecom sectors to private investors for the first time.

Investments by local insurers and pension funds will not only allow Beijing to tap into massive savings to fund investments as economic growth slows, but it will also allow these institutions to diversify their portfolio away from a dependence on bonds and other fixed income products.

Assets under management in China’s pension system totalled US$1.2tril at the end of 2012, according to newspaper reports.

Insurance companies had assets of 8.289 trillion yuan (US$1.36tril) at the end of 2013, official data shows. Invested funds totalled 7.687 trillion yuan, of which 29% was in bank deposits, 43% in bonds, and 10% in stocks and related securities.


For the energy sector, however, analysts said there would be more opportunities for foreign players in areas where they have technological advantages, particularly in the development of unconventional gas resources.

“In areas where the SOEs lack the technological know-how, they will open the doors to foreign companies, otherwise the priority is still local companies,” said Michael Yuk, a senior energy analyst at China Merchants Securities.

Sinopec, Asia’s biggest oil refiner, said last month that it would sell up to 30% of its marketing arm, which owns more than 30,000 petrol stations, in a multi-billion dollar asset restructuring.

While analysts said Sinopec could bring in strategic foreign players, such as Royal Dutch Shell or BP, executives at overseas energy firms are less sanguine.

“None (of the international energy companies) have the illusion that Sinopec will reach out to us in its divestment … there’s no such possibility,” said an official with a global energy firm, adding that fuel retailing is a sector where Beijing wants to limit foreign participation.

State-owned China Railway Corporation plans to seek private investment for a railway development fund that could be launched this year, the Shanghai Securities News reported on Thursday.

Details of the investment fund are still being formulated and a framework may be established by the first half of this year, deputy general manager Peng Kaizhou was quoted as saying.

Peng said the company was considering setting up a national rail development fund, with a fixed rate of return, or establishing an investment fund for specific projects.

China has pledged to speed up railway investment to help shore up the slowing economy. China Railway Corporation, set up in March to take over the defunct railway ministry’s businesses, will spend over US$100bil on more than 6,600km (4,100 miles) of new railway lines this year, state news agency Xinhua said.

Over the last 20 years, China has gradually introduced private investment and Western-style management to its state firms and turned the country’s biggest government conglomerates into stock market-listed shareholding firms.

But it has maintained control, especially on firms in the crucial energy and infrastructure sectors. – Reuters


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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