China earthquake shows state role in business
Friday, 30 May 2008

AP, SHANGHAI, China  -- China's devastating earthquake will mean big write-offs for China's state-run banks. For refiners, it means export profits foregone for the sake of keeping domestic supplies steady.

In China, big business means state-owned business, and many such companies will profit from rebuilding contracts and other opportunities, while others will be absorbing huge losses from the disaster.

In a statement on its Web site reported by state-run media Thursday, the agency that oversees China's major state companies noted that major state companies will play an important role in reconstruction, especially for energy, mining, machinery, chemicals and telecommunications.

Those huge opportunities are bound to boost revenues and profits, the official Xinhua News Agency and other reports cited the SASAC, a Cabinet level agency, as saying.

The death toll from the May 12 quake is expected to rise above 80,000, and businesses of all types naturally have pitched in, sending millions of dollars in donations of cash, services and products.

The government has put business losses from the disaster at 67 billion yuan ($9.5 billion), with estimates of total damage to factories, roads and other infrastructure running as high as 600 billion yuan ($86 billion).

For some industries, answering to their biggest shareholder -- the state -- will entail huge additional costs.

Although many big Chinese state companies have shares traded in overseas and domestic markets, most have top executives appointed by the Communist Party and answer mainly to government directives.

''The bosses of these companies do not perceive themselves as answering to shareholders, except the biggest one,'' said Robert Broadfoot, managing director of the Hong Kong-based Economic and Political Risk Consultancy.

Though companies everywhere are quick to offer logistical aid in times of crisis, in China the government's role in directing support extends far beyond what is expected elsewhere, he said.

Chinese banks have been ordered to forgive debts owed by earthquake survivors who lack insurance.

The China Banking Regulatory Commission has not said how much it expects the write-offs to cost the banks, but the Agricultural Bank, the main lender to the rural sector, is expected to take the biggest hit. It says its borrowers may default on 6 billion yuan ($850 million) in loans.

The Agricultural Bank -- the only one of China's four biggest state commercial banks that does not have publicly traded shares -- reported nonperforming loans totaling 23.5 percent of its total lending at the end of 2007.

China Construction Bank, which has shares traded in both Hong Kong and Shanghai, also may face a surge in defaults due to its relatively heavy portfolio of mortgage loans, analysts said.

It is unclear if the government plans to provide subsidies for those write-offs, or to extra costs for refiners, who already are getting compensation for losses resulting from the gap between international oil prices and domestically controlled tariffs for gas, diesel and other oil products.

China Petroleum & Chemical Corp., Asia's biggest refiner by capacity, announced Wednesday it would suspend exports of oil products beginning in the third quarter of this year to help ensure adequate domestic supplies.

The company, better known as Sinopec, had already cut back on fuel exports to Southeast Asian markets to help bridge chronic fuel shortages that have grown worse thanks to shutdowns by smaller refiners.

In some cases, the government is stepping in to salvage companies wrecked in the quake.

The SASAC is providing 500 million yuan ($71.4 million) to major power equipment maker Dongfang Electric Co., to help it rebuild its shattered factories, the state-run newspaper China Securities Journal reported Thursday.

''This is the first step of SASAC aid to the company,'' the newspaper quoted agency head Li Rongrong as saying.

Dongfang's shares, which had fallen nearly 25 percent since the disaster, rose 3.2 percent to 33.10 yuan on Thursday.

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