Saturday November 7, 12:00 PM

China state firms to pay less in dividends - report

BEIJING (Reuters) - Chinese state-owned firms will pay a smaller cumulative dividend to the central government this year because their profits have fallen, the Economic Observer reported on Saturday.

The World Bank and other international financial institutions have argued that the government should claw back a larger share of state-owned enterprises' (SOE) profits to reduce excessive corporate savings, which are mostly ploughed back into new investment.

But the Economic Observer said SOEs were likely to transfer only 38.5 billion yuan in 2009, down from 54.78 billion yuan last year. They started paying dividends, at a rate of 5 percent or 10 percent of profits, only in 2007.

Officials had ruled out an increase in the dividend rate to compensate for the shortfall in profits. the paper added.

"The decrease in the dividend is mainly due to the drop in enterprises profits as a result of the financial crisis," the paper quoted an official of the State-Owned Assets Supervision and Administration Commission (SASAC) as saying.

SASAC has direct oversight of 132 SOEs, a number it aims to reduce to 80 by next year as part of a drive to create a smaller core of internationally competitive firms.

Whereas economists would like the dividends to be used to strengthen China's welfare system, a Ministry of Finance official said there would be no change to the policy of reinvesting the money in SOEs or spending it on industrial development.

This year's dividends could also be used to invest in mineral resources overseas, the official told the paper.

Of the 54.78 billion yuan in dividends handed over to the central government last year, 49 percent went on new capital spending, 36 percent on big firms hit by natural disasters and 15 percent on structural reforms to SOES or the development of new industries, the Economic Observer said.

(Reporting by Alan Wheatley; Editing by Sanjeev Miglani)