A new asset management firm will be established within a month by China's state-owned asset regulator in a move to push ahead with restructuring of state-owned enterprises, sources familiar with the matter told China Daily on Tuesday.

With registered capital of 20 billion yuan (US$2.95 billion), the new firm, to be called Guoxin Asset Management Co Ltd, which will be wholly owned by the state-owned Asset Supervision and Administration Commission of the State Council (SASAC), will focus on consolidating state-owned enterprises and turn small and unprofitable state-owned enterprises into profitable companies.

Li Rongrong, minister of SASAC, said last week that the regulator has finished preparations for formation of the new asset firm.

Initial funding for the firm will come from the state-owned assets management budget and dividends paid by the central state-owned enterprises to SASAC, according to the sources.

The plan to set up a new state-owned asset management firm was approved by the State Council, or China's cabinet, in March. Once established, the new firm will take over the role of China Chengtong Group and State Development and Investment Corp, two asset management companies set up by SASAC in 2005 to take over loss-generating State-owned enterprises.

Nicknamed the second China Investment Corporation (CIC), the new firm will be a domestically oriented sovereign wealth fund set up by SASAC to better manage State-owned assets in the industrial sector, similar to the role of CIC that manages part of the country's foreign exchange reserve in the financial sector.

Zhang Weiguo, an analyst at China Galaxy Securities, said the new firm will help optimize operations of large State-owned enterprises by spinning off their non-performing assets.

Defense enterprises will likely be the first to undergo restructuring under the regulator's latest initiative, as the government has finished restructuring of major energy and telecommunications State-owned enterprises.

China started the reshuffle of its 196 central state-owned enterprises in 2005. The number of state-owned enterprises then shrank to the current 125 through larger firms acquiring smaller and unprofitable ones.

In March, the state-assets watchdog ordered 78 central state-owned enterprises to withdraw from the real estate industry as their land acquisitions are blamed for fueling the country's housing bubble.

State-owned companies were also asked to shed their hotel assets worth up to 100 billion yuan and focus on their core businesses.

State-owned enterprises reaped 525 billion yuan in profits in the first half of the year, a year-on-year increase of 65.1 percent, according to the SASAC.

(China Daily July 28, 2010)