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Tuesday, December 31, 2013


Reforming China’s state-owned firms: From SOE to GLC

- Nov 23rd 2013
SHORTLY before his confirmation as China’s “paramount leader” in 1978, Deng Xiaoping paid a visit to fast-growing Singapore. He planted a tree on a hill overlooking Jurong, a bustling industrial park built on what was once marshy wasteland close to the city-state’s harbour. Singapore’s success as a trading hub impressed Deng, who imposed his vision of economic reform on China’s Communist Party the following month, at an historic meeting known as the “third plenum”.
Singapore, which has a population of 5m to China’s 1.35 billion, remains a source of inspiration for some Chinese reformers. On the eve of the latest third plenum, held earlier this month, the Development Research Centre (DRC), a government think-tank, advertised an ambitious set of reform proposals, including an overhaul of China’s inefficient state-owned enterprises (SOEs). Simply privatising these companies remains out of the question for China’s leaders. But there are alternatives, and Singapore provides one.
The DRC’s plan named Temasek, a holding company for SOEs in Singapore, as a potential model. It was created in 1974, when it inherited 35 companies from the finance ministry. Its inaugural portfolio contained several of the firms that made Jurong eye-catching, including its shipyard and its birdpark (pictured). In the four decades since, Temasek’s portfolio has both multiplied (it is now worth S$215 billion, or $172 billion) and gone forth: only 30% of its holdings remain in Singapore itself. Its domestic holdings are concentrated in what Singapore calls “government-linked companies” (GLCs), such as Singapore Airlines (of which it owns 56%) and SingTel, a telecoms company (52%).
Temasek’s charter obliges it to increase the value of its holdings over the long term. This is a remarkably simple aim compared with the Chinese government’s manifold ambitions. It wants its holdings to promote technological progress, favoured industries and national security, among other things.
As well as clarifying objectives, the Temasek model also allows the state to distance itself from the management of its enterprises, without relinquishing ownership. Temasek avoids meddling in the day-to-day running of the GLCs in its portfolio, which are free to hire professional managers at market rates. With a few exceptions, it does not directly appoint board members either. This is partly because it does not want to become privy to price-sensitive information that might limit its ability to trade shares.
Temasek has evolved into an active investor, but not an activist one, says Stephen Forshaw, its chief spokesman. Although it does not appoint directors, it does meet regularly with its wards’ boards to make its feelings known. It also keeps managers on their toes by enlisting outside consultants, such as Bain or McKinsey, to spot industrial trends they should be aware of.
Would the Temasek model help improve the efficiency of China’s state-owned enterprises? Only one (Singapore Airlines) or possibly two (DBS bank) of Temasek’s GLCs have established themselves as international brands, according to critics such as Chris Balding of Peking University. SingTel has made successful foreign acquisitions, but other GLCs have fared less well. STATS ChipPAC, a semiconductor firm, lost money in the second quarter of this year, as a result of the costs of closing a factory in Malaysia.
The few academic studies of Singapore’s GLCs are more encouraging, however. A 2004 article by Carlos Ramirez of George Mason University and Ling Hui Tan of the IMF showed that the country’s GLCs enjoyed a higher market value, relative to the book value of their assets, than comparable private firms. They also generated a higher return on assets, on average.
In judging the performance of Temasek’s GLCs, the counterfactual is important. They may not be as obviously successful as private titans from the region such as Samsung or LG. But they are not nearly as bad as most SOEs, including China’s. The enthusiasm for reform of SOEs in China reflects their deteriorating returns and accumulating debt. According to M.K. Tang of Goldman Sachs, their return on assets was 6.5 percentage points below that of other Chinese firms in 2012 and their shares trade at a growing discount. Even Mr Balding, meanwhile, is happy to fly Singapore Airlines.
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Saturday, June 29, 2013

http://thenextweb.com/asia/2012/08/11/inside-bear-paw-baidus-headquarters-beijing/

Baidu’s sights are set on the top. The company is already the undisputed leaderof the Chinese search market, but its ultimate goal is to become the “world’s biggest media company,” according to Kaiser Kuo, its director of international communications.
Co-founder and CEO Robin Li has said he plans to make Baidu a household name in half of the world’s Internet markets in the next ten years. With recent moves into Southeast Asia and Brazil, the company has already put its overseas plan into action.
Baidu is relying on the cloud to get there. By its own reckoning, it already operates the biggest cloud in China, and the company is actively seeking out developers and partners for its “Baidu Cloud” OS, which is built on top of Google’s Android. It has already teamed up with Dell and Changhong and is in talks with more than 20 manufacturers.

The Bear Paw

On a recent tour of the 91,000-square-meter Baidu headquarters in northwest Beijing, I definitely felt the similarities to the headquarters of other Internet companies in the California Bay Area. Kuo tells me that’s no accident.
Li and fellow co-founder Eric Xu both spent time in the Bay before returning to China to start Baidu. Legend has it that Xu and Li worked together on a documentary about American innovation and were so inspired by what they saw that they decided to build a Chinese search engine.
The facilities opened up in late 2009 and now house roughly 5,000 of the company’s over 17,000 employees. Hamish Mackenzie has been told the building is shaped like a search box, though it’s not clear to me what the difference between that and a rectangle is.
The ceiling of the lobby has a massive bear paw, a nod to the company’s logo, as well as a screen showing real-time searches being made on Baidu.
Upstairs, the paw turns out to be a series of pods, including an auditorium, nap rooms and women’s and mothers’ lounges. I forgot to ask whether they double asescape pods, but, frankly, I wouldn’t be surprised.
According to Kuo, there are 42 lounges on site to foster group work among employees. Baidu hires the majority of its workers straight out of undergraduate and master’s programs, so the average age at the company is just 26.
Other facilities on campus include a doctor, yoga rooms, and a cafeteria that feeds up to 1,200.
So far, Baidu’s work culture seems to be paying off. The company posted better-than-expected revenue of $859 million and earnings of $1.26 per share in its most-recent quarter. With a lofty target of deriving half its revenue outside of China by 2020, Baidu has given its employees the huge task of accomplishing an unprecedented international expansion in a few short years.
From the looks of it, the company’s ‘bear paw’ headquarters should help put that goal within reach.