The State Development & Investment Corp (SDIC), the country's largest State-owned investment holding company, has embarked on a pilot program to manage State assets on behalf of the industry watchdog.

An SDIC official said yesterday that the goal is to further the reform of State-owned enterprises (SOEs). In order to do this, it plans to take over, acquire and swap assets with central SOEs' branch business, bad performing affiliates and non-performing assets.

As market competition becomes red hot, enterprises find it increasingly difficult to tap into the profit potential.

The State-owned Assets Supervision and Administration Commission (SASAC), the supervisory body of central 169 SOEs, has urged them to strengthen their management of bad assets to improve their competitiveness, said Li Rongrong, minister of SASAC.

"Usually, the option is on the niche market by innovation and improving efficiency by strengthening assets management, especially those non-performing assets," Li said in a conference in early November.

In an inspection of 181 central SOEs in 2004, SASAC spotted an asset losses of 352 billion yuan (US$43.5 billion). About 40 percent was attributed to bad debts and 30 percent to a loss of fixed assets.

Blind and copycat investment also led to a loss of 52.8 billion yuan (US$6.5 billion), accounting for 15 percent of the total.

China National Packaging Cooperation (CNPC) has been in the custody of SDIC since March. The SASAC sent a team to take charge of CNPC's business management but would not get involved in the company's finances.

"The project is moving on smoothly and has got a favorable feedback from SASAC," a SDIC official surnamed Chen told China Daily.

Chen also disclosed that very few SOEs would stay in the custody of SDIC. "Most of the bad assets, branch business, non-listed assets and bad-performing affiliates will be transferred, acquired and swapped," said Chen.

The pilot program aims to improve the State assets management scheme and provide a platform for ongoing restructuring and merging of SOEs, an SASAC official said.

SASAC is encouraging central enterprises to make mergers and acquisitions to sharpen their competitiveness.

After a series of mergers, the number of central enterprises shrank from 196 in 2003, when SASAC was set up, to 172 in 2004.

By the end of 2005, three SOEs merged, dropping the final number to 169.

The latest merger formed China Communications Construction Group (CCCG), which began operations in Beijing on Saturday.

With a registered capital of 4.5 billion yuan (US$560 million), and total assets of some 70 billion yuan (US$8.6 billion), CCCG is the result of a merger between two of China's biggest infrastructure companies, China Harbour Engineering Company Group (CHEC) and China Road and Bridge Corporation (CRBC).

"The merger of CHEC and CRBC can largely strengthen their competitiveness in the global market," Zhang Qiusheng, an analyst with China Galaxy Securities, told China Daily. "With the expanded business scope, the new group will be more able to win international bids."

(China Daily December 21, 2005)