U.S. Investors Shun China's State-Owned Companies
April 11, 2000
When the stock of PetroChina -- the offspring of the state-owned China National Petroleum Corp. -- was finally listed on the New York Stock Exchange last week, it closed below its opening price.
The offering was supposed to pave the way for other Chinese state entities to tap U.S. capital markets. But the performance of PetroChina shares indicates a lack of investor interest in offerings from China's state-owned industries. There are several reasons for this, say observers:
- Over the past two decades, the profitability of China's state-owned companies has declined from of around 25 percent of assets to around 5 percent.
- China has not moved rapidly toward real shareholder ownership, and state ownership does not appear to be "withering away" rapidly.
- The stock offerings of red chip companies are sometimes misleadingly referred to as "privatizations," but they are not -- since the Chinese government remains in full control of its companies listed on the Hong Kong and overseas exchanges.
By law, managers of state-owned companies in China can sell no more than a third of shares to foreign investors. Having no control over a company which they partly own is not an attractive proposition to investors.
Although the state's share of output has declined in the past two years -- owing mostly to the efficiency of newer and smaller private firms -- the state has added 40 million employees since reform and has greatly increased its assets.
Source: John Berlau, "Investors Shun PetroChina Offering; Future of Other 'Red Chips' in Doubt," Investor's Business Daily, April 11, 2000.
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