Aug. 12 – In further signs that China is going global, Li Rongrong, the chairman of the State-owned Assets Supervision and Administration Committee confirmed that proposals are being looked at that would effectively reposition some SOEs outside of China if their global activities warranted it.

Li mentioned that the proposal have been under review for some time, under circumstances where SOEs, via overseas acquisitions—and in particular financial and investment funds—required their main office of operations to be external from China.

The main territory to benefit from this would be Hong Kong; although he mentioned that the State Council would be unlikely to interfere in choices if the circumstances required for example, a headquarters in New York or London.

This ties in with earlier reports (here and here) of extensive SOE restructuring as the State Council continues to prepare them to participate in a more internationally competitive arena. While policies in China are expected to favor SOEs, the situation globally is both far more open and paradoxically, more political, and in order to secure and manage overseas assets, such as financial investments, energy and so on, SOEs need to be run more along the lines of multinational corporations.

Hong Kong’s position as a global financial center makes it attractive for China to reposition their SOEs there, along with the fact that the territory’s ultimate legal recourse lies in Beijing. That however will still not negate a move to New York for certain SOEs, both as a future potential management experiment by the Chinese as a strategic move to gain executive knowledge and lobbying power, and also as a political move, should the circumstances over U.S.-based assets prove to be more advantageous to China to relocate a core business.

Having Chinese SOEs under and subject to U.S. financial examinations and laws prior to profits repatriation to China may yet be a while away. However, in order to prevent the debacle of previously aborted Chinese acquisitions of U.S. companies such as the Unocal deal, having an acquiring SOE headquartered in the United States may sweeten the political pill allowing both sides to reach an acceptable compromise over strategic acquisitions.