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Abstract
During the 1990s, ownership of China's listed firms remained stable: state entities remained in control of restructured state-owned enterprises since only a minority of shares were allowed to trade publicly and to be owned privately. However, since 1999, the ownership of China's listed firms has become more fluid due to the development of an off-exchange market in ‘legal person’ shares. This paper examines two such cases of ownership change. The case of Taitai's take-over of Lizhu shows that transfer of control is now occurring on a commercial basis. However, the Baiwen case shows that buy-outs are still being organized by government entities to support failing state firms. The deals suggest that while the government is using all means to restructure listed firms, rather than de-list them, it is also moving to create a competitive market in control.
Acknowledgements
The authors would like to thank Laura Xia, Liu Qin and Su Mei at the Shenzhen Stock Exchange and staff at Taitai Pharmacueticals. We are also grateful to He Ming for excellent research assistance and comments and an anonymous reviewer for wise counsel.
Notes
A listed company was usually ‘carved out’ of an SOE, its productive assets being inserted into the listed subsidiary and non-productive assets being placed in the parent, the later taking LP shares in the listed vehicle. Individual shares (tradable shares), state shares and LP shares each make up approximately one-third of a listed company's equity capital. State shares cannot be listed or freely traded, and their transfer is subject to approval by the MoF. LP shares cannot be listed, and cannot be traded in the market although they are now relatively easily transferred in one-to-one deals. For an introduction to share types, see Green (Citation2003a, pp. 15–18). On SOE restructuring, see Huchet & Richet (Citation2002, pp. 169–201).
The LP share market is examined in Green (Citation2003b) and Green & Black (Citation2003).
At the end of 2000, Sanlian was a state-controlled firm, and the group's website at the time of writing seems to indicate it still is, although it is possible that during 2002 the firm was bought out by the Sanlian Worker's Co-operative.
Mei Jun (Citation2003).
Zhu Defeng, ‘PT Zhengbaiwen liangnian nianbao ruhe kan’, Zhongguo Zhangquan Bao, 10 February 2003, sourced from http://news1.jrj.com.cn.
Any company registering two years of losses or other major problems is transferred to the ST category (an additional year of losses taking the firm into PT). Since 2002, the CSRC has moved to eliminate gradually the PT category altogether by introducing an automatic trigger for a de-listing once a company has recorded three years of losses.
See (Nie & Tian, 2001).
Wang Jiahang, ‘Zhengbaiwen shenqing huifu shangshi touzizhe yinbingyou zai yilu nanxiao’, Zhonghua Gongshang Shibao, 17 February 2003, sourced from http://news.homeway.com.cn, April 2003.
Founded in 1985 as an electronics manufacturer, Sanlian's interests now include real estate, trade, tourism, media and investment banking, a classic provincial-level diversified conglomerate SOE. See http://www.sanlian.com.cn.
‘Zhengbaiwen (600898): Chongzu qu de jinzhang’, Homeway News, 9 November 2001, sourced from http://news.homeway.com.cn.
A requirement for new owners who purchase more than 30% of the listed company.
He Xiaoqing, ‘Zhengbaiwen fushi wei Sanlian jietao? Jiujing shi huo hai shi fu?’, Zhongguo Jingji Shibao, 12 February 2003, sourced from http://news.homeway.com.cn.
In November 2001 the company made a Rmb940 million ($114 million) sale of assets to its parent company, the Zhengzhou Baiwen Group. See ‘Temporary regulations on accounting methods for related-party asset sales’, issued 21 December 2001 by the MoF.
Meng Qinguo, ‘Suansuan Baiwen Chongzu Duoyingzhang, Sanda Falv Yingshang Xianxian’, Wuhan University, 8 June 2003, sourced from http://finance.sina.com.cn/t.20030806/0947395450. shtml, October 2003.
A brief account of the Lizhu case can be found in ‘Mingying Ziben Qibing’, Xin Caifu Zazhi, August 2002, pp. 77–79.
Homeway News, ‘Lizhu Jituan (000513): Guangda Jituan yu tuichu’, Homeway News, 16 January 2002, sourced from http://news.homeway.com.cn.
Interview, Shenzhen September 2003; Yang Wenlin, ‘Lizhu guquan xizheng! ‘Taitai’ yuanhe zhongqing ‘Lizhu’?’, Yuegang Xinxi Ribao, 14 June 2002, sourced from http://news.homeway.com.cn.
Based on http://www.cninfo.com.cn.
ZLIC's role in Lizhu's acquisition is described in two articles: Li Xuebin, ‘Lizhu Jituan zhigong chigu jihua shouzu’, Zhongguo Jingying Bao, 2 March 2001, sourced from http://news.homeway.com.cn and, ‘Lizhu: yi shigu de mingyi chenggong’, Nanfang Dushi Bao, 21 May 2002, sourced from www.tsing.com.
Zhang (2002).
They allegedly wrote off some Rmb200 million ($24 million) in receivables.
Interview, Shenzhen, September 2003.
Taitai's board of directors also decided to use some of the capital to pay off Rmb112 million ($13.5 million) worth of outstanding loans, as well as Rmb30 million ($3.6 million) of the outstanding loans of one of its subsidiaries, Haibin Pharmaceuticals. These measures lowered the firm's debt–equity ratio to 12.7%, which allowed Taitai and its subsidiaries to borrow the capital for further acquisitions at competitive rates. In April 2002 the firm acquired Jiankang Pharmaceuticals, a producer of drugs and health supplements based in Hong Kong. See Han Qiang, ‘Taitai Yaoye shougou Lizhu – Yongyou xianxiang zhisan’, 17 April 2002, sourced from http://news.homeway.com.cn. Ken Te, ‘Taitai Yaoye ziben shichang dashou bi yanyi, Zhu Baoguo tan shougou Lizhu Jituan rumo’ Shanghai Zhangquan Bao, 29 April 2002, sourced from http://news.homeway.com.cn.
Interview, Shenzhen, September 2003.
Hu Chaohui & Chen Xingan, ‘Hengkua A, B gu liangge shichang ‘Taitai’ chi ‘Lizhu’ you xinyi’, Jinzhou Kan, 10 May 2002, sourced from http://news.homeway.com.cn
Zhang Ke & Wu Jingkai, ‘Taitai Yaoye zhizai konggu Lizhu guquan zhengduo jinru bairehua’, Yuegang Xinxi Ribao, 10 April 2002, sourced from http://news.homeway.com.cn
Established in May 1995 in Xian, Shaanxi province, as a beverage producer Dongsheng entered the drugs sector in December 1996 when it acquired Shaanxi Weidong Pharmaceuticals. See Tsui & Green (Citation2002).
Han Qiang, ‘Taitai gaochu bu sheng han’, Homeway News, 23 April 2002, sourced from http://news. homeway.com.cn.
‘Guangda jianzhen dianjiang, Dongsheng yingji Taitai’, Nanfang Ribao, 17 April 2002, sourced from http://news.homeway.com.cn.
‘Taitai Yaoye (600380): Kewang yongyou Lizhu dongshihui sixi’, Homeway News, 10 May 2002, sourced from http://news.homeway.com.cn.
Huang Mei & Wu Man, ‘Taitai Yaoye (000513): Chenggong nakong ‘Lizhu’ xin dongshi hui’, Zhengjuan Shibao, 27 June 2002, sourced from http://news.homeway.com.cn.
However, on 5 January 2003 it was announced that Lizhu's general manager for 17 years, 67-year old Xu Laoxian, would be replaced by Xiao Siyang, a man with extensive experience in joint-venture pharmaceutical firms. See ‘Taitai Yaoye: Xuan ding Lizhu xin zhang men da zao ‘ju wu ba’ zhongren’, Nanfang Ribao, January 6th 2003, sourced from http://news.homeway.com.cn.
Business China(Citation2001, pp. 2–3).
Wang Jiahang, ‘Zhengbaiwen shenqing huifu shangshi touzizhe yinbingyou zai yilu nanxiao’, Zhonghua Gongshang Shibao, 17 February 2003, sourced from http://news.homeway.com.cn, April 2003.