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China releases state-owned company reform guidelines

"The government will improve the competence of SOEs and turn them into fully independent market entities," it said/AFP

“The government will improve the competence of SOEs and turn them into fully independent market entities,” it said/AFP

BEIJING, China, Sep 14 – China on Sunday unveiled broad reform guidelines for state-owned companies aimed at making them more globally competitive and increasing transparency in a powerful sector of the world’s second-largest economy.

The guidelines, issued by the ruling Communist Party and the State Council, or cabinet, are meant to “deepen reforms” and “invigorate torpid SOEs” (state-owned enterprises), said the official Xinhua news agency.
“The government will improve the competence of SOEs and turn them into fully independent market entities,” it said.

The Chinese state manages more than 100 companies directly, including behemoths in key sectors such as transport, energy production and arms manufacturing.

But a key Communist Party meeting in 2013 called for the market to play a greater role in the economy by giving private companies more opportunities.

Analysts and foreign companies operating in China have complained that officials have been slow to carry out painful changes needed to unleash sectors of the economy that remain tightly controlled despite decades of reforms.

Among the reported changes are efforts to modernise SOEs, improve the management of state assets and diversify their ownership structures through “mixed ownership” – or the introduction of “multiple types of investors” – ultimately meaning more private shareholders or capital.

The guidelines call for non-state companies to buy stakes in SOEs, greater decision-making powers for SOE boards, the establishment of a pay system that is flexible and market-based and the hiring of more professional managers, Xinhua said.

Oversight of state-owned assets will be improved while supervision will be strengthened both within SOEs and from outside to “prevent abuse of power and the erosion of state-owned assets”, Xinhua said – a euphemism for embezzlement.

The guidelines also call for the achievement of “decisive results” in key segments by 2020.

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“The government should nurture a group of SOEs that are creative and can face international rivals by that time,” Xinhua quoted the guidelines as saying.

Reports have previously said that China is considering merging scores of its biggest state firms to create around 40 national champions.

Concerns have increased that China has been dragging its feet on key changes to the economy as growth steadily decelerates amid an ongoing transformation in its economic model, as consumer spending and services replace industry and investment as mainstay growth engines.

The government’s heavy-handed response to a recent stock market rout, in which it has aggressively intervened to try and support prices, has also raised red flags about its commitment to fundamental change.

The SOE guidelines also call, in Xinhua’s description, for “persevering along the socialist market economy reform path” and in “the Party’s leadership of state-owned enterprises” – suggesting continued strong central influence.
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