Study On Overinvestment In SOE And Measure To Deal With Financial Crisis

A listed arm of China COSCO Shipping Corporation Limited under the supervision of SASAC,China COSCO Holding Co.,Ltd.has become a key listing platform for China COSCO Shipping Corporation Limited since 2007 in the A-share stock market in China,with the stock code of 601919.Its initial stock price performance was impressive,touching RMB 68.4 and pushing net margin to 20.9 billion in 2007.With the prosperity of the global shipping industry,China COSCO ramped up investment and acquired a number of shipping orders while leasing a large quantity of non-proprietary vessels.During industrial up-swing,expansion of this scale generated considerable returns.However,as global economy plummeted and bubbles burst in the shipping industry,heavy-debt fueled expansion led to severe financial distress.After years of annual addition of vessel asset of over RMB 9 billion and,with an ever expanding fleet,its financial health was in serious trouble.Revenues falling far short of expenditures and poor operational results led to huge cash outflow.To shore up operation capital,China COSCO took out considerable loans,and issued bonds,boosting its indebtedness levels through the roof;and two consecutive years of loss making crashed its share prices and risked de-listing from the market,with S&P rating China COSCO as having extremely precarious a financial position in its corporate report.To shake off financial distress and avoid a delist,China COSC.O has made numerous efforts,including OMOs and non-market operations closely linked with the government.OMOs include management reshuffle,strategic structural transformation,.and asset and financial restructuring.Generally speaking,China COSCO's market efforts prove feeble in improving performance.Management reshuffle failed to bring down management cost.Operational structure reforms gradually lowered the proportion of bulk cargos and improved the share of container cargos.However,due to existing long term and expensive vessel leases,it still can't turn around its loss-making operations.Asset restructuring for the purpose of avoiding delist boils downs to the parent providing transfusion to it,which failed to address the operation and financial distress.And its financial restructuring's aim is to access more operation capital to prevent a capital chain rupture.In comparison,its non market efforts achieved significantly better results than market efforts.Acquiring scrap and build subsidies was a key reason that it didn't see losses in 2013 and 2014 while national policy priorities also afforded China COSCO space to upgrade its shipping capacities.Gradual centralizing of operations of bulk cargo vessels changed previously fragmented businesses based on regions and provided conditions for the following spinning off of the bulk cargo business altogether.The following merger with China Shipping endorsed by SASAC was the key to the turn-around.China COSCO Shipping Corporation was finally able to strip bulk cargo out of its listed arm while focusing its attention on container shipment and terminal operations,two profitable businesses,through a series of mergers and restructures.In the end,with in-depth reforms,China COSCO turned a profit in Q4 of 2016.And in Q1-Q3 of 2017,it recorded an operating profit of RMB 4.6 billion and a net profit of RMB 4.6 billion.Against the backdrop of lackluster global economic recovery and slump in global shipping industry,China COSCO's reform plays a key and positive role in its profit making results.Judging from China COSCO 's financial distress as a result of overinvestment,the mitigating measures it took and the following market performance,it can be concluded that in-depth and resolute reform is the solution to the problems of over investment and low efficiency of SOEs,which shall serve as a case study and reference for our efforts to reform SOEs.