Chinese State Rising: Only Two Types of Companies Can Survive in China, SOEs and Foreign

Life is good for SOEs in China and hell for private enterprises who cannot obtain credit and go overseas for equity listings. Credit disinflation in China is not a falling tide that lowers all boats, but a political one. Those with connections have credit, those without do not. Assets on private balance sheets are being sold below market value to state-owned and state-backed enterprises. Even though the number of state-enterprises is decreasing, their control over the economy is growing.

iFeng: 叶檀：大变化！不管股市、楼市、还是债市

In the future, only these two types of enterprises can survive and fight each other: state-owned enterprises and foreign companies.

State-owned enterprises, especially central enterprises, are in a gratifying situation.

At 3 pm on July 12, Peng Huagang, deputy secretary general of the State-owned Assets Supervision and Administration Commission of the State Council, introduced the economic operation of central enterprises in the first half of 2018.

In June, state-owned enterprises realized a profit of 201.88 billion yuan, a year-on-year increase of 26.4%, setting a historical record. In March of this year, state-owned enterprises have set a record high of more than 160 billion.

In the first half of 2018, central enterprises realized a total operating income of 13.7 trillion yuan, an increase of 10.1% year-on-year. The income of 17 enterprises increased by more than 20%, the income of 43 enterprises increased by more than 10%, and the profit reached 887.79 billion yuan, a year-on-year increase of 23%. The efficiency of 37 enterprises increased by more than 20%, and the efficiency of 58 enterprises increased by more than 10%.

Industrial enterprises in central enterprises have a better life. In the first half of this year, the profit reached 515.28 billion yuan, a year-on-year increase of 33.9%, which was higher than the average growth rate of central enterprises by 10.9%, and the increase in profits accounted for 78.6% of the increase in profits of central enterprises.

The economic growth rate has reached the best level in history, and the leverage ratio of central enterprises is declining. By the end of June, the asset-liability ratio of central enterprises was 66%, a decrease of 0.3 percentage points from the beginning of the year and a decrease of 0.5 percentage points year-on-year.

Supply-side reforms, as well as credit tightening, first let state-owned enterprises and central enterprises have a good life.

Last year, state-owned enterprises' revenues reached 50 trillion yuan, and profits reached 2.9 trillion yuan, up 14.7% and 23.5% year-on-year respectively. Central enterprises' revenues were 26.4 trillion yuan, and profits were 1.42 trillion yuan, up 13.3% and 15.2% year-on-year respectively, the best year in five years.

The investment in state-owned enterprises is on the rise, and the growth rate of investment in private enterprises is declining. For private enterprises, the most important thing in the past two years is to live.

In December 2017, Xu Shanda, former deputy director of the State Administration of Taxation, screamed at the speech. Last year (2016), our economic growth was 6 percent. In the investment field, mainly supported by state-owned capital, the growth rate of private capital investment is only about 3%. In the state-owned capital investment, more than 80% rely on the so-called infrastructure construction.

This year is also the same, the external compression, the main pressure is private enterprises, the equity property pledge channel is blocked, P2P off, some private enterprises can not even borrow at usury rates. In order to survive, the companies are listing overseas.

The near-term outlook for private companies is not good.

Regardless of the stock market, the property market, or the bond market, private enterprises have to stand by for the time being.

Two days ago, in Shenzhen, I met a friend who was doing private placements. They said that they invested in a potash mine in the northwest and took the initiative to sell the controlling stake at a low price to a state-owned enterprises. Although the state-owned enterprises spent "3 billion" to do things, they themselves one billion can be made, but if you still have to cooperate, you should be "seeking a peace." In the past two years, the price of the mine has not been good, and there is no turning point in the future. In recent years, it has not been prepared for large-scale investment.

Another example is the listed company Jinyi Culture, which announced on July 9 that the real controller, Zhong Luan and his brother Zhong Xiaodong, intend to transfer 69.12% and 4.20% of the equity of Bikong Longxiang to Haikejin Group. The price is 1 yuan.

Bikong Longxiang holds a 17.9% stake in Jinyi Culture and is the controlling shareholder of the company. According to the latest market value of Jinyi Culture, Zhongjia Brothers sold a stock with a market value of nearly 900 million yuan for only 1 yuan.

The shareholders of Jinyi Culture had problems, the investment was radical, the stock price fell, the cash flow broke, and they were forced to sell for 1 yuan.

The buyer Haikejin Group is a subsidiary of the State-owned Assets Supervision and Administration Commission of Haidian District, Beijing. It is the controlling shareholder of Sanju Environmental Protection and holds 29.71% of the shares of Cuiwei.

In addition to paying 1 yuan, Haikejin Group can help Jinyi Culture to borrow 3 billion yuan, including but not limited to direct financing (direct borrowing), providing credit enhancement (guarantee), etc. The cumulative amount of liquidity support is not low. It is worth RMB 3 billion.

During a deflationary event, assets are sold far below market value. If you have access to credit or have government backing, engineering a deflationary collapse moves assets from debtor to creditor. In China, the SOEs are taking over good private assets at firesale prices. This is a hidden tax that doesn't show up in economic calculations.

The Shenzhen Stock Exchange also has a tendency for state-owned enterprises to acquire equity. It is even more obvious for SMEs. Even Vanke has found the Shenzhen Metro as a backing.

According to the data of the Shenzhen Stock Exchange, as of June 30, the listed companies in Shenzhen Stock Exchange suspended a total of 206 major asset restructurings. Compared with the previous two years, the number of companies has decreased significantly. The total number of major asset restructuring plans has been disclosed 82 times, involving transaction amount 2843. The amount of 100 million yuan was basically the same as that of the same period of last year. The average single transaction amount was about 3 billion yuan, up 22% year-on-year.

In the first half of the year, the Shenzhen State-owned listed company merged and reorganized 22 singles, with a transaction amount of 95.6 billion yuan, accounting for 38% of the total amount of mergers and acquisitions transactions in Shenzhen. Compared with private enterprises, the number is small and the amount is large.

The investment in listed companies of large state-owned enterprises and small platforms continued to emerge. China Merchants Group injected high-quality port assets into Shenzhen Chiwan to integrate intra-group assets. COFCO injected fuel ethanol, starch and corn deep processing R&D enterprises into COFCO Biochemical. It is the only corn deep processing company that integrates scientific research and production.

In addition to the injection of group assets, some state-owned enterprises issued shares to private entities to purchase assets. Fengle Seeds purchased the shares of its corn seed company from 34 natural persons. Aerospace Development acquired three information security and big data technology service providers to strengthen the information security sector.

The reasons for mergers and acquisitions and injections are various. In short, they are all beneficial to the economy. In fact, there is nothing more than a word. At this stage, who has resources, at present, in which direction resources are flowing.

For example, prove the "soft power" of state-owned enterprises.

In June of this year, I chatted with the local bank chiefs of a big bank. She said that because the risk of deleveraging is endless, their bank's main loan direction is still the big city city investment company and large state-owned enterprises. This is the lowest risk practice at this stage.

From Vantage to Country Garden, the dealers couldn’t help but the developers continued to squeeze the cycle. Even the industry leaders are precarious, and the pressure of other companies can be imagined.

Crash here

Clear-minded people know that private enterprises can solve employment and strengthen market competition. Only a few people are crazy to completely eliminate private enterprises. The reason for the current situation is that the credit system of the domestic market has been decided. Every time it is leveraged, it can only be private enterprises, and they are the most risky. Especially those private enterprises that have invested aggressively in the expansion cycle and have no moat support.

It can be concluded that, fundamentally speaking, despite the market reforms of forty years, the current private enterprises still do not have the qualification to compete with state-owned enterprises.

Why can foreign companies compete with state-owned enterprises?

Because of the huge trade pressure, openness has become the main theme. In the fields of finance, high-tech, high-end services, we must gradually liberalize and have already made a large-scale open attitude.

On July 12, foreign media reported that BMW had plans to increase the share ratio of BMW Brilliance to 75%. Although it was quickly rumored, it came to the forefront.

Tesla, a new energy vehicle company, has set up a factory in Shanghai. This is a state. It is worth noting that Tesla still has sufficient funds to build factories?

According to the 2018 quarterly report released by Tesla, the company's net loss during the period was 785 million US dollars, an increase of 90%. Where does Tesla's funding for building a new factory come from? Wall Street's financial hackers have been singing Tesla, is it possible for Tesla to get billions of dollars in Chinese stocks or banks?

n the future, it will be the competition between foreign companies and central enterprises, and it will be competition between large funds and large enterprises.

On the surface, the number of legal persons in central enterprises is decreasing. By the end of June this year, central enterprises had reduced the number of legal entities by 11,261, with a reduction rate of 21.58%. Don't take this number too seriously, know that the real control is in resources, not quantity.

All of this makes people think of a sentence. Even an established nation like Zhou still regards self-renewal as its mission.