Executive Summary
Alongside the establishment of the State-owned Asset Supervision and
Administration Commission (SASAC) of the State Council in March 2003, Chinese
authorities start to orderly construct a new state-owned asset management system
from top to bottom. Under the control of this new state-owned asset management
system, a new wave of privatization of state-owned enterprises (SOEs) is
emerging in China. As compared to the past privatization of state-owned
enterprises, this new wave of privatization presents a remarkable feature — the
state property of enterprises has to be transacted publicly at the property
trade markets. In past, local governments privatized most SOEs in the way of
insider holding shares to purchase their SOEs, such as management buy-out (MBO),
employee stock ownership plan (ESOP), so that excluded outsiders to purchase
SOEs. The insider holding shares to purchase their SOEs has occurred a bulk of
state-owned assets to be embezzled and eroded by insiders. The severe erosion of
state-owned assets led the central government to make decision on establishment
of SASAC and a new state-owned asset management system from top to bottom. As a
result, SASAC promulgated the “Opinion on Normalizing Ownership Transformation
of SOEs” on 25 November 2003 and the “Interim Regulation on Transference of
State Property of Enterprises” on 31 December 2003 respectively to avoid the
erosion of state-owned assets. These regulations stress that the transference of
state property of enterprises has to be transacted at competitive price at the
property trade markets, and publicized information on transactions. Thus, China
opens the door to a lucrative market for outside investors to purchase and merge
SOEs. At the same time, the “Interim Provisions on Introducing Foreign
Investment to Reorganize State-owned Enterprises” promulgated by the former
State Economy and Trade Commission (SECT), Ministry of Finance (MOF), State
Administrative Bureau of Industry and Commerce (SAIC), and State Administration
of Foreign Exchange (SAFE) has been come into force since January 2003, so that
the emerging new wave of privatizing SOEs brings foreign investors a good
opportunity to purchase and merge the Chinese SOEs.
How to capture this good business opportunity? Undoubtedly,
this question is looking forward to being understand for foreign investors. To
capture this good business opportunity, it is necessary to understand a series
of questions: The privatization progress of Chinese SOEs and its features; The
new state-owned asset management system and structure; The legal base of
emerging privatization of SOEs and its features; The procedures for ownership
transformation of SOEs; How state property of enterprises to be transacted at
the property trade markets? The holders of state property at the different
levels—Who have the authorities to sell out the SOEs?
The legal base and qualifications of foreign investors to purchase and merge the
Chinese SOEs; The procedures and methods of transaction for state property at
the property trade markets; How
significant
questions should be considered to purchase and merge SOEs for foreign investors?
This report, based on the latest regulations and policies, provides the detailed
discussions step by step, and guides foreign investors to purchase and merge the
Chinese SOEs. |
