enhance the performance of SOEs in key areas, and the SASAC hopes it will help relocate state-owned assets and create leading companies in the world.

The SASAC has stated that seven areas must remain state-controlled-military, electricity grid and power supply, petroleum and petrochemical, telecommunications, coal, civil aviation and shipping, though that doesn't rule out their restructuring.

Major domestic airlines, such as China Southern Airlines and Air China, have already made the leap. Petroleum, petrochemical, telecommunications, shipping and coal companies are already mainly listed on the Hong Kong stock market. Therefore, the major restructuring targets that remain are military, power and grid industries, which lack listed group companies.

Currently, there are 11 military-related central SOEs, which control 43 listed companies. The operational assets of those listed companies are spread across various manufacturing sectors with diversified businesses that vary widely in performance. These are the most likely to go for overall listing and aim for capital injection. In the power and grid sector, there are nine central SOEs holding 18 listed companies. A large-scale restructuring of capital in this sector is very much expected. Guodian Power Development Co. Ltd. and SDIC Huajing Power Holdings Co. Ltd. are on their way to overall listing.

Wang Zhigang explained that there are possibly three ways for restructuring. The first one is an integration of "strong and strong," with the goal to forge internationally competitive companies. The second is that strong companies acquire weak ones. For instance, downstream and upstream central SOEs will merge. The third way is to operate non-key industry companies through state-owned assets management companies.

"Strong and strong" integration is the most important way to strengthen company competitiveness and their presence in the international market. Judging from the present situation, the major industries restructured in this manner include iron and steel, real estate, car manufacturing and aviation. Those industries are similar in many aspects: they have many central SOEs and most are very strong and have large operational scales.

Market impacts

At present, the shares of companies that have overall listing plans have attracted many investors in the Shanghai A-share market.

In April this year, Aluminum Corp. of China Ltd. (Chinalco) launched its A-share market initial public offering with 1.23 trillion A shares, at 6.6 yuan per share. After an exchange of shares with Shandong Aluminum Corp. and Lanzhou Aluminum Corp., Chinalco saw its share price soar to 56 yuan on October 12. Two days later, Chinalco successfully acquired Baotou Aluminum Co. Ltd.

In recent years, the operation and competitiveness of central SOEs have increased with the growing Chinese economy. From 2003 to 2006, their aggregate assets and net profits increased at a two-digit speed each year. According to figures published by the SASAC, their main business revenue grew to 8.14 trillion yuan in 2006, up from 4.47 trillion yuan in 2003, an increase of 81.9 percent in three years. Furthermore, their profits increased 151.1 percent, up to 754.7 billion yuan from 300.6 billion yuan in 2003. In the three years, the return on equity escalated to 10 percent, up from 5 percent. By the end of 2006, central SOEs held 12.27 trillion yuan in assets, swelling by 47.4 percent compared with that of 2003.

In the capital market, the number of listed companies attached to central SOEs accounted for one sixth of all A-share market listed enterprises. However, these companies comprised up to one fourth of the market value and over one third of total profit and revenue.

The listing of central SOEs will greatly help upgrade the overall quality of the A-share market, improve the industrial structure of enterprises listed on the A-share market, and better assist the A-share market function as an "economic barometer."