China tightens grip on SOEs' overseas investment
Shanghai. April 12. INTERFAX-CHINA - China's State-owned Assets Supervision and Administration Commission (SASAC) on Wednesday published new regulations that restrict state-owned enterprises (SOE) under its control from investing outside their core businesses.
Effective from May 1, the guidelines stipulate that SOEs under the direct control of the SASAC are "in principle" not allowed to invest abroad outside their core business, though the commission can give its approval in special cases.
"One of our major tasks this year is to strengthen our oversight of SOEs' investment by ordering them to suspend or postpone projects unrelated to their core business and those lacking competitiveness," Shao Ning, deputy chief of the SASAC, told state media.
The rules could prove a headache for diversified metals majors such as Minmetals and Aluminum Corp. of China (Chinalco), which are increasingly reliant on non-core businesses to support profits and are ramping up overseas investment as the country seeks to secure supplies of strategic resources.
But the guidelines are more likely aimed at curbing investment in risky financial products amid the ongoing economic volatility, rather than investment in industries.
The regulations require SOEs to improve risk-prevention and establish contingency plans, as well as submit annual overseas investment plans to the SASAC and notify the committee immediately of any new investments or changes in existing projects. The rules do not apply to SOEs controlled by provincial branches of the commission or local governments.
Beijing appears to be battening down the hatches following a rapid rise in overseas investment activity in recent years as Chinese firms snapped up assets at bargain prices in the aftermath of the global financial crisis, said Umetals analyst Hu Zhengwu.
There are currently 118 SOEs that have overseas investments under the control of the SASAC, and more than 100 new projects were started in the fist quarter this year alone.
As of the end of 2010, 99 centrally-controlled SOEs had overseas investments worth a combined RMB 2.66 trillion ($422 billion), up 50.4 percent from 2009. And during the first 11 months of 2010, central SOEs saw revenue of RMB 3.4 trillion ($540 billion) and profits of RMB 128 billion ($20.32 billion) from their investments abroad, up by 30.7 percent and 28 percent year-on-year respectively.
But despite the potential for attractive yields, significant risks nonetheless remain. In July last year Chinalco said it lost RMB 340 million ($53.97 million) on a bauxite project in Queensland, Australia after aluminum prices tumbled following the global financial crisis.
And Sinosteel Corp., one of China's largest iron ore traders, in June 2011 suspended all operations at its Weld Range hematite iron ore project in western Australia citing slow progress in the construction of the Oakajee Port and Rail link.
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