China’s state-owned enterprises are struggling to get their piece of the rescue capital the central government is pumping into the economy, writes financial expert Victor Shih in his analysis of China’s bailout.
Details on who gets what money are still scarce but state-owned companies – good for 30 percent of China’s economy and employment – are in urgent need of recapitalization, writes Shih, using the city of Chongqing as an example.
Basically, Chongqing SOEs, which focus on land holding, real estate, electricity, and financial services, are in deep trouble. Land prices in Chongqing have fallen by over 70%. The electricity group is in the red by about 250 million RMB. The debt asset ratio for the 8 major SOE groups in Chongqing has risen to 72%. No details are given about the financial holding companies, but considering that their main role is to inject capital in the other SOEs, they can’t be doing too well either. Things are not pretty, and the well off SOEs have to inject capital in the problematic ones.
Just like the US bailout, China’s bailout is only buying time, not addressing the equally urgent need for structural change, writes Shih.
In the near future at least, the Chinese budget can handle these costly, but necessary bailouts.
Victor Shih is one of the leading voices at the China Speakers Bureau, trying to make sense out of China’s way to deal with the global economic crisis. When you need him as a speaker, do get in touch.