Schooled by Singapore

Is Sasac going to be transformed into a Chinese version of Temasek?

Temasek Holdings sign

The model to emulate?

Before Deng Xiaoping visited Singapore in November 1978 the Chinese press often referred to the city-state as a “running dog of American imperialism”. But when Deng met the Singaporean leader Lee Kuan Yew that year they bonded straight away. A month later Deng began to reveal his bold vision for economic reforms. In a swiftly-revised assessment, China’s media began praising Singapore as “a place worth studying”.

With a population of just five million (versus China’s 1.4 billion), Singapore has remained a source of inspiration for Chinese reformists. In November 2013 – on the eve of the Party’s all-important Third Plenum (see WiC217) – the Development Research Centre (DRC), a key think tank under the State Council, cited Singapore’s Temasek as a model for further reform of Chinese state firms. And the Temasek model has become a hot topic in the media again this week, after the State Council announced a long-awaited directive on further restructuring the state-owned enterprises (SOEs).

One of the talking points is whether Sasac, the central authority which controls the 112 biggest state firms, will adopt more of an arms-length approach like Temasek.

Temasek has investments in 45 government-linked companies in Singapore, with its portfolio of firms constituting about 47% of the value of the local stock market. This makes it look rather similar to Sasac as a heavyweight influence, although a key difference is that the Temasek model requires that the state distances itself from the management of the enterprises concerned.

By contrast, Sasac is a much more active shareholder. “Sasac sets out to protect and increase the market value of state-owned assets. Over the years it has been exerting control in the day-to-day running of SOEs. The Temasek model has never been adopted,” Sina Finance notes.

This could be set to change, the Securities Daily suggests, with a new plan to establish an extra bureaucratic layer between Sasac and the state firms. “Sasac will no longer directly intervene in the running of most SOEs under the new three-tier system,” the newspaper predicts.

Whilst the potential powers of these holding firms are unclear, the proposals imply that Sasac is going to have its authority curtailed. There has long been a sense that it is dragging its heels on privatising its ownership stakes, while Zhao Changwen, a director of the DRC, told the Global Times that the new structure will help to sort out lingering problems like overcapacity in state-dominated sectors such as steelmaking.

Acting like fund managers “they will buy and sell equities in such a manner that state capital can enter or exit specific industries,” Zhao predicts. “Some state firms will be cleared out, some will be restructured and merged, and some new ones will be created.”

According to WIND, a local financial information provider, there are 1,040 listed companies in China either controlled by Sasac or by other state bodies. They carry a combined market capitalisation of Rmb25 trillion ($3.9 trillion) or more than half of the local stock market. (If anything, the number looks set to grow as more provincial and local governments float their assets in the years ahead; see WiC234).

It is not known how many of these ‘Temasek-style’ holding firms will be created. But the reform blueprint suggests that the SOEs will be divided into two broad groups: ‘commercial’ and ‘public welfare’ (the latter likely to include utilities such as telecoms and energy).

What about the much-touted process of ‘mixed ownership’ reform? The document says that state firms will be allowed to bring in private investors to help diversify their ownership. And Xinhua reports that the plans intend to encourage private investment, and that “decisive results” are expected by 2020. However, the state news agency added that the government wouldn’t be pushing the SOEs too aggressively nor setting a detailed timetable for how the reform process should advance. Instead, changes would be given the go-ahead “only when conditions were mature”.

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