I never thought that any Chinese own company would default given that the government owns it. What will the results be?
I never thought that any Chinese own company would default given that the government owns it. What will the results be?
A few years ago - after China's solar PV boom and the US implemented anti-dumping tariffs - effectively decimating the private market for residential PV in the USA. Several domestic manufacturers drowned in expansionist debt, others survived through M&A's (Mergers and Acquisitions). This is normal behavior in open or free market enterprises and many pundits were surprised that China didn't step in to bail these firms out. This global event is also currently being played out in the AlcatelLucent - Nokia M&A dance.
I was privy to some alleged solar PV Utility-scale project proposals and I can very bluntly say - these firms spouting these kinds of garbage seriously deserved to go under, because of their utterly ludicrous business models and plans.
Having a business model with a 4,000 year ROI - that's beyond fraudulent, it's a criminally irresponsible mentality.
About a decade ago - the government also allowed many small to medium SOE's to sink or swim - many sank as they could not migrate/evolve from a corporate welfare culture to a competitive performance-based culture.
I disagree with the way in which the entities were allowed to sink - as I thought at a minimum, the government should have provided training, to those who were seriously interested in competing - however the shock was definitely effective - leaving many managers and employees of defunct entities in comatose states for years after.
These lazy parasitical guanxi-based useless appendages are slowly being pruned, although they'll never be fully eradicated (like weeds) - but pruned to a manageable level is good for the country and good for industry.
The next wave of China's economic model is going to be extraordinarily challenging - providing benefits to the poor - housing for all (in the cities), retirement and assisted care living for the masses (as opposed to the wealthy), and cleaning up the pollution and polluting industries - going "green" - although cities are probably the largest concentrated polluters - take Kunming as an example - roughly 7 million people pooping, peeing, and flushing daily...where does it all go - except for that damned parking attendant who poops and pees on the side of our building. NIMBY (not in MY backyard).
China is slowly evolving to a more professional investment-based criteria as opposed to guanxi-based lending. Although that's not a guarantee of success - it's definitely more professional and helps significantly reduce bad debts - until they learn how to subvert the system a la US banks, and bend and twist laws to make massive profits based on fraudulent and unethical practices.
I see it as a good sign. The weeding-out that @laotou discussed above was basically halted in the early 2000s when the party decided that they wanted SOEs to continue to dominate the economy. They consolidated many sectors, granting monopolies and endless cash to a handful of "national champions."
The fact that they let this company default hopefully signals that they're ready to clean things up a bit.
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en.ce.cn/main/latest/201504/27/t20150427_5217229.shtml
the share prices upswing of the listed entity last week signalling there would be a white knight. my reading into the event, more PBC play will be the norm - more distortion. :-)
when the gobnermont pobaganda machines start talking about the SHSE index reaching 6000 or even 8000 when the year started, unusual to say the least....... it is time having fun for the brave. make hay while the sun shines. make sure one has the undies when the tide turns, I guess. hahhahahh
About 10 years ago, SOEs were told that they would no longer have protection, there would be no more tied contracts, and that they would have to fend for themselves. This was in part to answer the problem of inferior goods and services.
Initially this meant competition with other SOEs, then competition with WFOEs and JVs.
As a result many SOEs failed, others were swallowed by mergers and aquisitions (with/by other SOEs). Some of the companies that survived grew very big and are now national and even global brands, many others became a part of history.
SOEs that have borrowed money on the open market cannot expect any form of financial protection from government. Doing so only leads to more toxic debt, and unhealthy business.