Saturday, 30 January 2010

CHINA CONTINUES TO RENATIONALISE

What's yours is mine in China's coalfields

The Australian
January 25, 2010

NOWHERE is renationalisation more blatant than in the rich
coalfields of Shanxi.

Yet there's money lying beneath this unalluring mix. Loads
of it. Taiyuan is scattered with Bentley showrooms, Rolex
boutiques -- in fact, all the luxury brand names from New
York, London, Paris, Hong Kong and Shanghai. And the locals
like to talk about money.

"When a Shanxi businessman goes to Beijing to look for
houses, he doesn't just look at one apartment -- he looks
at the entire side of the building," a Shanxi executive
said in Taiyuan last week.

Most of the money has come from coal, the black gold that
fuels China's power stations and its steelmaking blast
furnaces, processing Australia's iron ore. Fortunes have
been built on the back of the province's mine workers, and
with their blood: there were 2631 deaths in China's coal
mining sector as a result of mine accidents last year, but
the figure was down by 20 per cent on 2008.

Shanxi is changing. Once home to thousands of small and
mid-sized mines and mining companies, now the government is
taking over again. Shanxi's coal sector is a high-profile
symbol of renationalisation: the second coming of
state-owned enterprises.

Tens of thousands of state-owned enterprises were pulled
apart in the 1980s to allow capitalism to develop. But now
the country's leadership is becalmed as it heads into its
last two years in power after years of only incremental
economic reform.

China's ruling politico-corporate complex has also been
emboldened by the opportunities of the global financial
crisis, which saw more than $US1.5 trillion pumped into the
economy, most into state-run companies.

The crisis has also been used to step up plans for
consolidation in eight key industries: the aim of this is
to have a smaller number of large companies which China
wants to be able to compete with large foreign
multinationals as well as expanding globally.

It's not just on a national level. In Shanxi, home to 30
million people, seven provincial coal miners have been
allocated a slice of the private sector at a bargain price.

In Shanxi close to 2000 small mines have been forceably
reclaimed, officially for efficiency, health and safety and
environmental concerns. These are real concerns: the
government attributes the fall in deaths to small mine
closures and says 70 per cent of fatalities are at small
mines. But one miner owner says he instituted the extra
safety and environmental controls but was still forced to
sell to the government at a loss of 5 million yuan
($833,000).

Businesses from the wealthy province of Zhejiang and its
famously rich capital Wenzhou are the biggest single source
of investment in Shanxi's coal sector.

"Wenzhou, one of the regions with the most active private
economy, has only 4.5 per cent GDP growth in the first half
of last year, far below national level," Xia Yeliang, a
professor at Beijing University, says.

"One of the reasons is Wenzhou's private entrepreneurs have
invested in about 600 coal mines in Shanxi with 200 billion
yuan, which face mergers now.

"It has severely hit Wenzhou's economy. The
renationalisation will have irrevocable impacts on China's
economy. It will have a profound negative effect on wealth
distribution and future development of China, and it must
be stopped now."

Lawyers claim their clients are getting only about 30 per
cent of the real value of the business in the forced sale
of coal mines. The provincial government has appointed its
own valuer, but lawyers have claimed this is against the
law. Mines are effectively being bought back for the price
of exploration licences handed out during the first decade
of the century and this does not take into account capital
spending and commercial contracts, says Zhang Yucheng, a
lawyer at national Chinese law firm Dacheng Law Office.

Last year China depended entirely on government funding to
achieve its 8.7 per cent growth. It was a tough year for
businesses in China -- recent government figures showed 20
per cent of small businesses went broke between November
and May and a further 20 per cent went close to collapse --
but China's state-owned enterprises got richer.

Last week the state press reported that China's SOEs were
expected to generate 750 billion yuan in profits and
achieve sales revenue of 12 trillion yuan in 2009.

In the first 11 months of 2009, the 131 SOEs under the
direct supervision of the State Assets Supervision and
Administration Commission (SASAC) posted 3.4 per cent
year-on-year growth in profits to 710.9 billion yuan on
revenues of 11.1 trillion yuan. "China will continue to
push ahead with the restructuring of its SOEs next year and
will encourage state-owned companies to pursue mergers and
acquisitions across different regions and countries," SASAC
director Lo Rongrong says. "We will also back private
enterprise investments in state-owned entities."

Initially, aggrieved mine owners, unaware of their legal
rights, were loath to take on the government. But now
China's biggest law firm, Dacheng, has taken on the case
for a group of mine owners.

"The Shanxi government has no right to handle the ownership
of private coal mines. It violates the Chinese
constitution, contract law and mineral resource law," Zhang
says.

"The transfer deal price should be assessed according to
market value."

The law firm is pushing for the appointment of an
independent arbiter to reassess the valuation of the mines
and says the Shanxi government has breached a number of
laws and regulations.

This is an interesting case in a country with no private
property rights.

sainsburychina@gmail.com - Michael Sainsbury

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