Optimization Of Capital Allocation And Value Creation Effects In State-owned Enterprises Group

The 3rd Plenary Session of the Eleventh Central Committee of the CPC has made one of its priorities the administrative institution reform of state-owned enterprises and asstes. China is to emphasize on the regulation of state-owned asstes by oversighting national capital, reform the authorized managing institution of state-owned assets, form several state-owned capital operational enterprises, and support some state-owned enterprises with preferable conditions to transfer into state-owned capital investment enterprises. This reform reveals that state-owned enterprises are transforming from ’assets management’ to the new managing system of ’capital management’. In July 2014, State-owned Assets Supervision & Administration Commission (SASAC) has kicked off pilot reform program of’Four Reforms’and selected State Development & Investment Corp. Group (SDIC) as one of its pilot enterprises, which has attracted much attention nationwide.The issue centered in this paper is how SDIC, as the pilot enterprise of the’Four Reform’, optimize the allocation of its state-owned assets. The paper studies the optimization of industrial allocation of SDIC on group level, the optimization of business allocation of SDIC on enterprise level, as well as the leverage amplification effect of the state-owned assets through the reform of mixed-ownership on the level of share-holding ratio. Different from existing studies, the paper focuses on the specific cases of the allocation optimization issue of state-owned assets on various perspectives, and supports the conclusion through financial analysis.The major findings of the study are:(1) through the restructuring of State Capital Investment Corporation, SDIC has perfected its capital management, incestment orientation, structure adjustment, as well as reform and innovation; (2) SDIC optimized its industrial captital allocation in the upper group level, and its business capital allocation in the lower holding company level. It also developed mixed ownership on the both levels of holding company and investing enterprises, thus upgrading the efficiency of the state-owned capital allocation; (3) SDIC improved its capital structure through optimizing the capital allocation.This major innovation of the paper is as follows. (1) This paper studies the issue of optimization of state-owned capital allocation in the form of case study for the first time. (2) This paper analyze the methods of capital allocation optimization of SDIC from four different angles, which are:industrial allocation of the group, business allocation of the enterprises, share-holding ratio between the group and its enterprises underlings, as well as the governance and regulation of the group and the enterprises.