Igor MAZEPA: si buys “China”, Ukrainian ore will increase in price and the world price of steel will be more stable

 

Chinese leader XI Jinping, having the opportunity to rule China indefinitely after recently, in March 2018, the deputies of vsekitajsky meeting of national representatives (China’s Parliament) approved an amendment to the Constitution, abolishing the limitation of powers of the Chairman and Vice-Chairman of China two terms of five years, together with his team decided on the buyback of the company under the name “China”. What does this mean for the world in General and Ukraine in particular? – we’ll discuss this with the renowned expert on economic issues, the CEO, the owner of the company Concorde Capital Igor MAZEPA.

China, despite its pretensioned in the plan of world economic domination, still remains for many in his own mysterious country, and sometimes the logic of certain events at all difficult to understand. Some of the recent steps the Chinese authorities are trying to solve the accumulated problems, arouse interest and generate …new questions, including those concerning our country. It seems that the system of government in China is outdated, and Mr C decided on drastic steps.

Your opinion, Igor Alexandrovich as expert: what is the logic and how to understand the actions of Chinese leader and his team in addressing important economic policies?

All pretty logical, if you look at things from a different angle, presenting China a large public Corporation with many shareholders who do not want to wait and wish to get quick profit and put respectively certain tasks to managers in this direction. The company’s management is forced to focus on short-term production indicators. But this often comes at the expense of long-term targets. Besides, hoping for a quick promotion up the career-ladder, the “managers” of the departments are aggressive in the struggle to achieve the most important key performance indicators (KPI), while often suppressing or ignoring the developments and initiatives of other “competitors”.

As a consequence, the company is moving “the wrong way”, resources are used inefficiently, and the business may goes up quickly but is unpredictable and poorly controlled. Accumulate debt, which also grow along with the business.

One of the methods of “treatment” in such cases is the buyout of the company by management. This allows the management of the company to make a break, taking a pause to adjust a lot and go to another format. As a result, the company can abandon the development less efficient, the short-term, or too expensive units, focus on qualitative long-term growth.

– Thus, the redeemed of the company a second wind, increasing its value…

– I would even say – a new breath. The company becomes more resilient and may return to the public market through IPO.

Am fact of holding an IPO for the company is usually very positive because it means she’s old enough to qualify for raising capital in this way, after all, resort to it only when you need really a lot of money for large-scale expansion.

– Of course, it is very important. In addition, public companies attract much more attention that facilitates the recruitment and marketing process. However, there are several disadvantages of an IPO is the attention by regulatory bodies, which becomes closer to the company after the IPO (there are a large number of requirements of both the state and themselves the stock exchanges, which are companies listed on them must perform. In particular, it concerns the issue of the financial statements. In addition, the company’s founders are not always able immediately after the IPO to sell their shares and become millionaires, because this can reduce their rate and business capitalization.

But we do not now go into these processes (especially since “company” in our case is the state itself!), and trying to build a logical chain, why is the command XI Jinping was decided on a buyout of the company called China.

In the recent past, several groups of leaders were fighting with each other, wanting to climb the career ladder at the next change of government. And this is understandable. After approval of the plans KPIs for the next five years the functionaries in the different provinces of China began to seek ways “to perform and exceed”, which implemented an ambitious but not very practical and feasible projects.

This system of “corporate governance” China and the motivation of the leaders of his divisions was to lead to various distortions that inhibit growth of profits and even drove the economy into debt.

Now, as part of the restructuring of the economy may be more emphasis on the long-term and softer indicators, such as the environment and resource efficiency. Of course, XI and his team will have to cautiously and persistently working to maintain and return the received to “buy” credibility. Not only this virtual credit, but it is real debt, which China’s economy has acquired over five years of extensive growth.

But the greater will be the impact if the consolidated government “management” will successfully lead China to the next stage of its “corporate development” to achieve more sustainable, quality growth. Ideally, through several five-year plans C or its successors will lead China to “IPO” in the transition to electoral democracy.

– Of course, waiting for “some five”… Quite a long time. You can hope for in the near future, in what is still the interest and benefit of Ukraine in this case?

– The recent actions of the Chinese authorities indicate that their dividends will receive, and Ukraine – in the mining sector. The fact that to ensure ambitious projects of building materials in China designed steel output, which in the end turned out to be “excessive” and unprofitable (regional leaders cared little – they just beat the target). As a result, China began to export excess steel, lowering world prices and making them less predictable.

With the new structure of “corporate governance” and a focus on the environment, profitability and debt reduction, number of employees steelmaking complexes in China should be reduced. And the rest of the enterprise will increase the download and profit, will increase the demand for higher quality and pure iron ore. Thus, prices for high-quality Ukrainian ore will increase, and the world steel prices will be more stable.

 

Anna ERMINE

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