Sanjiu Group Restructuring

The Chinese economy has developed very quickly over the last 20 years, many excellent enterprises were established and powerful leaders were born. These powerful men, strong and ambitious, progressed their companies, overcame various difficulties, and achieved great successes. Regarded as the godfathers of the enterprises, their positions were unchallengeable,at the same time, this situation proved to hinder the further development of the company in the market economy.Innovation needs power, force and supremacy, with which the godfathers owned. The preliminary stage of the market economy provided emerging companies and their leaders with great opportunities. But with the approach of the new century, the good times of these companies seemed to be at an end. From abroad, foreign enterprises started moving their manufacturing centers into China eliminating the low-cost advantages of the Chinese enterprises. Locally, growing private companies were fighting for more and more market share. The more intense competition required higher qualifications of entrepreneurs, and the times of relying on the efforts of single definite person had ended, and the accumulation of hidden problems in those companies, were enlarged and could not be hidden any more. On the dismissal of 999 Group CEO, Zhao Xinxian, the State-owned AssetsSupervision and Administration Commission of the State Council (SASAC) justified his dismissal by explaining that Zhao was too old for the position. The fact was, that years of un-related diversification had left 999 Group with more than 100 billion RMB banking debts. We see that the enterprises which lost their entrepreneurs seldom have good endings. Many examples: the Jianlibao Group without Li Jingwei, the Hongta Group without Zhu Shijian, etc., can hardly escape from this fact. These powerful leaders had tightly controlled their entire companies, and this accumulated internal conflicts finally resulted in big problems. In the 1980's, a foreign economist declared that there is no enterprise but workshop in China. He meant that Chinese companies only care about manufacturing and selling and don't see the importance of having modern governance mechanisms. Thosestate-owned companies, whose huge funds were occupied by their big shareholders, with tremendous debts, thus treading on a long hard road of reorganization.Using the 999 Group case's history and reorganization process as an example, this article, is composed of four parts as following: Preface introduces the related party transaction of listed companies; Chapter One is a background of 999 Group including a brief introduction, history, operation, and a big event timeline of the companies; Chapter Two is the main body of this article, firstly introduces the major means of corporate reorganization, and the restructuring of firm's equity and debt, secondly indicates the reorganization process of 999 Group, and finally analyzing the three methods that 999 Group used to try and solve the funds occupation problem; Chapter Three gives a brief summary of the article and mentions the structural problems, reorganization process of these state-owned companies, and concludes with explanation of the possible deficiencies in the article.