Chinese ICT - Chinese Academy of Science to Sell Holdings in ICT Companies
January 07, 2005
The Chinese Academy of Sciences recently announced that it would reduce its holdings in high-tech companies based in Beijing, Chenyang, Shanghai, and Changchun in 2005. The move is a part of the academy's six-year privatization reform plan aimed at improving corporate management in its invested companies.
Academy officials emphasized that the decision to scale back investments in certain companies was necessary in order to turn over corporate development to national and multinational management teams. Officials complained that the existing system impedes enterprise development. Prior to this decision, the academy had been working to implement asset enhancement reforms for several years.
Starting in 1997, the Chinese Academy of Sciences decided to make adjustments within the entities it controls. At the time, the academy's subsidiaries encompassed 84 research institutes and more than 800 invested enterprises. After five years of closing and restructuring businesses that were in the red, by 2003, the total number of invested enterprises had fallen to 394. Presently, the Chinese Academy of Sciences has controlling shares in 20 different companies, in addition to minor shares in six others.
As these enterprises have come to place greater emphasis on more technologically sophisticated R&D, the need for investment capital and new management talent has increased in urgency. Once the academy carries out privatization experiments in the four aforementioned cities, it intends to expand the scope of the effort to cover invested companies in other regions starting in late 2006. The academy has set a goal of reducing its shares in invested companies from 80% to 50% or less by the end of 2008. By 2010, it hopes to have thoroughly divested itself from said companies.
According to academy officials, the total value of the academy's holdings amounts to roughly 10 billion RMB (US$1.2 billion; 1 USD = 8.28 RMB). Total revenue for the academy's invested enterprises reached 53 billion RMB (US$6.4 billion) in 2003, racking up 3.6 billion RMB (US$435 million) in profit before taxes.
The academy intends to use a portion of the profits derived from selling its holdings to fund R&D, especially for software development, computer chips, and research aimed at harnessing alternative forms of energy. Another portion will be committed to attracting technical personnel. Whatever capital remains will fund compensation for workers that are laid of during the process of privatization. In 2001, the academy announced that it would shed 80,000 workers within five years.
Founded in 1949, the Chinese Academy of Sciences first ventured into the world of capital investment in the 1980s, with the hopes of integrating scientific research into the developing market economy. One of the academy's most successful offspring was Legend, the predecessor to China's largest PC maker Lenovo. Legend was founded in 1984 and the academy originally held 65% ownership in the company. As part of the agreement that sealed Lenovo's purchase of IBM's PC business last month, the academy's share in Lenovo will drop to 45%.