Shanxi to Clear Struggling State-Owned ‘Birds’ Out of Its ‘Cage’

“Empty the cage and change the birds.”

That’s what coal-rich Shanxi province says it wants to do, as it announced the latest batch of state-owned assets it will divest as part of an ongoing provincewide industrial restructuring plan.

Twelve state-owned firms will be giving up stakes worth a total of 70 billion yuan ($10.8 billion) in 41 other state-owned companies, including over a dozen in coal-related industries, Shanxi’s State-Owned Assets Supervision and Administration Commission (SASAC) announced Tuesday.

The province introduced its “cage-clearing” plan last year in order to “encourage the departure of capital from traditional industries, and to give priority to these funds entering non-coal industries,” according to the Shanxi SASAC’s official website.

Twelve transfers were announced in the first round of cage-clearing on Nov. 20, with the former owners of the transferred assets including major coal-related companies like Shanxi Coking Coal Group Co. Ltd., Yangquan Coal Industry Group Co. Ltd., Shanxi Lu’an Mining Industry Group Co. Ltd. and Jincheng Anthracite Mining Group Co. Ltd.

More than three-quarters of the assets selected for the second round were in companies that made no profit or lost money in the first six months of 2017, according to information released by Shanxi’s SASAC.

Many also had high debt ratios, including Shanxi Huaneng Yushe Power Generation Co. Ltd., which had a debt ratio of 152% as of June. Gemeng International Energy Co. Ltd., a joint venture between state-owned Shanxi International Energy Group Co. Ltd. and a group of foreign investors, will unload its 40% stake in Shanxi Huaneng Yushe Power Generation under the cage-clearing plan.

Meanwhile, Shanxi has been transferring state-owned assets into the Shanxi State-Owned Capital Investment and Operation Co., which was set up in July under a nationwide push to improve the management of state-owned assets.

Centrally controlled SOEs and Shanxi SOEs also agreed to cooperate on the latter’s reform plans and develop communication channels after talks between provincial and central authorities in late October.

The phrase “empty the cage and change the birds” was originally used in South China’s Guangdong province in 2011 to describe a plan to shift the region away from traditional manufacturing and toward the service and technology sectors. It has since become a catchphrase for governments attempting to change the type of industries (the “birds”) operating within their regions (the “cages”).

From 2014 to 2016, Shanxi’s economic growth was below the national average, and the province has lately been engaged in an effort to diversify its economy. Over the past two years, Shanxi cut its coal production capacity by 45.9 million metric tons (50.6 million tons), according to Shanxi Coal Industry Association figures released in December.

Contact reporter Teng Jing Xuan (jingxuanteng@caixin.com)