It is reported that state owned companies have had the fire held to their feet for more rapid expansion, but what happens when hastily made decisions turn to singed investments?
While the reasons behind the step down of Sinosteel's president remain unclear, the risk prone environment of state firms has once again come into the spotlight.
Sinosteel faces great pressure, as it operates in a non monopoly sector, unlike state firms in energy and telecom industries. So, it is not hard to understand why Sinosteel has thus far sought aggressive expansion.
Under this context, Sinosteel has launched a flurry of acquisitions and restructuring, expanding into sectors like mining, carbon, refractory, ferroalloy and equipment manufacturing.
Sinosteel saw revenue rising from CNY 20.1 billion in 2004 to more than CNY 160 billion in 2008, thanks to the booming iron and steel industry during that time. In 2010, Sinosteel booked of CNY 186 billion in revenues, ranking 352 among the Forbes Fortune 500.
While rushing forward, problems have emerged. Starting in 2007, Sinosteel had huge fund transfers with a private firm Shanxi Zhongyu Iron and Steel Limited. In 2008, Zhongyu owed Sinosteel more than CNY 2 billion and the amount owed increased to nearly CNY 4 billion in 2010.
The National Audit Office said in a report last August that Sinosteel had significant problems in financial management. To accelerate growth, Sinosteel bought Australian iron ore miner Midwest Corporation for USD 1.4 billion in 2008. But the project, which was still at an early stage of prospecting, suffered CNY 92.8 million in losses in 2009, contrary to earlier plans of iron ore production of 30 million tonnes a year.
For Sinosteel, the investment leaps that turned into pitfalls have not been accidental, but instead, are a reflection of the inherent flaws in state company objectives.
Since December 2003, Huang has been at the helm at the central government controlled Sinosteel Corporation, formerly called China Iron and Steel Industry and Trade Group Corporation. Mr Huang was removed from his top position in Sinosteel and the decision was formally announced by the state owned Assets Supervision and Administration Commission on May 16th 2011, which cited work needs as the reason for Huang's departure.
(Sourced from www.caing.com)
