Dual-level Internal Capital Market In State-owned Group

With the great development of the state-owned enterprises reform, the functions of state-owned group’s internal capital markets at different levels are no longer convergence. To optimize the allocation of the state-owned capital as a whole, we should focus on the way to explore what the different functions are between the dual-level internal capital market, and how to realize them.Existing research in the scope stop at the internal capital market between group’s major shareholders and listed company, or market between listed company and the other company controlled by the same shareholder. However, the functional study of internal capital market between listed company and the subsidiary company is very scarce. This paper selects COFCO to discuss the internal capital market at different levels of functional analysis and demonstration. Therefore, the core issue of this paper is:What is the difference between different levels of internal capital market in the functional orientation? How does COFCO realize the function of different levels? How do internal capital markets at different levels cooperate with each other? Whether the group can achieve the optimal allocation of state-owned capital through the rational operation of the internal capital market?Through this case I found that:(1) the upper internal capital market optimizes the allocation of capital by the rational flow of funds, the state capital incremental investment, divestiture, reorganization and securitization. And it optimizes the allocation of assets by the integration of existing assets, restructuring industrial chain, overseas expansion and top assets injection. (2) the lower internal capital market uses the issuance of short-term financing bills, providing financial assistance and the introduction of private capital to solve the problem of financial liquidity. (3) Dual-level internal capital market make the entire group’s internal capital flows more smoothly through the establishment of a finance company focused on management of funds, etc.The innovation lies in:(1) the paper reveals that the upper internal capital market optimizes the state-owned capital in industries; (2) the lower internal capital market improve the daily operations of the financial liquidity. (3) the paper summarizes specific ways to optimize the allocation of state-owned capital to provide theoretical support on the development of state-owned enterprises.The enlightenment lies in:the establishing of state-owned capital investment should highlight the focus of different levels of capital allocation activities, the upper internal capital market should focus on resource reasonable distribution and integration of industries, lower internal capital market should focus to ease the financial liquidity pressure, and the introduction of private capital should also be concerned.