A question of ownership
Euromoney Limited, Registered in England & Wales, Company number 15236090
4 Bouverie Street, London, EC4Y 8AX
Copyright © Euromoney Limited 2024
Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

A question of ownership

We are dominated by ideals: perfect tax systems, monetary discipline, level playing fields and - above all - unambiguous lines of ownership. In the real world, though, financial systems and ownership structures are never quite what they seem. The governance of a US joint-stock company is not that far removed from a Chinese village-owned enterprise. And this may not be the best time to impose our ideals on Asia, argues Harrison Young.

In 1994, on my first visit to Beijing, I asked a vice-minister in one of the planning agencies what was the hardest aspect of enterprise restructuring. "Finding the owner," he said. This is a deep saying. It applies to everything that is going on in Asia today. It encapsulates the discoveries east and west are on the brink of making from their current encounter.

Consider the classic Chinese state-owned enterprise (SOE). It makes something, though maybe not too well. It has too many employees, some of whom are highly talented. It provides them with housing and medical care. It pays minimal taxes but buys power from the local grid at an inflated price. It has dozens of affiliates, from which it obtains supplies and through which it distributes product. The ownership of some of these is murky. There is a subsidiary in Hong Kong, but no-one can tell you how it originated. Because the SOE does not prepare consolidated financial statements, its true performance is indeterminable. It is borrowing heavily from the local branch of one of the state banks.

A classic restructuring analysis, as performed daily by young investment bankers and corporate planners in North America or Europe, would involve identification of inessential assets, renegotiation of the power-purchase contract, decisions on lines of business to sell or shut down, redeployment of the cash trapped in Hong Kong, repayment of debt, lay-offs, recalculation of core cashflow, and at the end, perhaps, a debt-equity swap.

Gift this article