Is Sinopec's Retail Sale A Big Deal?
A Sinopec gasoline station (Photo credit: Wikipedia)China Petroleum & Chemical Corp., or Sinopec, seems to be leading the way in the latest round of state-owned enterprise reform. The oil refining conglomerate agreed to sell a 107 billion yuan ($ 17.5 billion) stake in its retail business to 25 investors from a diverse selection of industries. China Life Insurance., billionaire Guo Guangchang's Fosun International, Tencent Holdings, juice maker Huiyuan and others have decided to get their hands on the retail unit, which operates more than 30,000 gasoline stations and about 20,000 convenience stores throughout the country.
However, it seems unlikely that private investors will exert a big influence in the unit's management. No investor would owe more than a 2.8% stake while Sinopec would retain 70.1% of the retail business, its filing shows. As the Wall Street Journal points out, Sinopec seems to be more interested in using the proceeds to boost its more lucrative exploration and production businesses rather than ceding genuine control to promote the so-called 'mixed-ownership' model- Beijing's partial privatization plan designed to use outside investment to increase efficiency of the state-run behemoths.
Still, the deal- still subject to approval of the Ministry of Commerce- could provide some interesting opportunities. Shortly before the stake sale, Sinopec has signed a preliminary plan with Tencent to cooperate in areas like mobile payment, data services and digital navigation in the retail arm. Earlier this month, Fosun has also started to work with Sinopec in 24-hour pharmaceutical sale in eight convenience stores in Shanghai, according to the official Xinhua News Agency.
But more rigorous SOE reform is needed. After being pushed to invest in many projects of low return since the 2008 financial crisis, the state firms' return on assets is now extremely low. The ratio is 3.1% in 2012, less than half of that in the private sector, according to consultancy Gavekal Dragonomics. The SOEs - half of which now sit in non-strategic sectors such as retail, hotel and restaurants- are a big drag on China's service sector, especially on modern business services such as telecom, leasing services and logistics where state firms are still very, very dominant.
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