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SOEs Told To Pay Up

Further to suggestions reported in July [1], and again in September [2], last year it seems that a pilot programme will see key state-owned enterprises (SOEs) paying dividends back to the government – rather than piling profits back into fixed assets (and the stock market). According to the FT:

Whenever there are big policy moves, and when big money is involved, it is interesting to remember that “the government” has many arms that are not always in agreement behind closed doors. In this case the FT notes:

While there may now be agreement at a policy level, the implementation may still present challenges. I suspect that the local government officials tasked with collecting dividends from their friends in these big enterprises will have a tough time balancing the demands of their masters in Beijing with the desires of their friends in the bar.

I recall a similar situation when the regional offices of the People’s Bank of China were reformed some years ago. There was a story of a local bank manager who had been told by Beijing that all new loans must be approved on a commercial basis. This is what he told the local SOE manager when he refused a new loan request. So far, so good. But within a couple of weeks his child had been excluded from school, his wife was threatening to leave him, and he was under intense pressure from local officials and business leaders.

It is worth remembering that sometimes policy is easier to implement on paper than in practice. And this is especially true when company accounts are concerned, and while corporate governance [3]leaves a lot to be desired.

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