Local govts push for SOE reforms
Clear goals needed for better results: experts
China’s plans to reform its massive State- owned enterprises ( SOEs) could see an increase in pace in the second half of the year, as more and more local governments have been pushing for hastened reforms, according to media reports.
However, experts cautioned that the government should establish clear goals for SOE reforms, in order to let market forces play a bigger role in the companies’ decision- making mechanism.
According to a report on financial news site cs. com. cn on Monday, about a dozen provinces in China have convened meetings to deploy SOE reform plans for the second half of 2017, with frequent activities seen in places such as Shanghai, South China’s Guangdong Province and North China’s Tianjin.
For example, the Guangdong branch of the State- owned Assets Supervision and Administration Commission ( SASAC) has formulated a plan to improve the SOE layout in the province by integrating assets in industries like finance and high- speed railways, according to the cs. com. cn report. About 36 SOEs in Guangdong will be “streamlined,” the report noted.
East China’s Jiangsu Province also issued a guideline that says the provincial government will push forward SOE
Liang Jun,
Research fellow at the Guangdong Academy of Social Sciences restructuring through measures such as establishing a provincial port group and a comprehensive tourism group.
Some SOEs have also accelerated the reform process on their own. China National Petroleum Corporation ( CNPC), for example, has stressed that the company and its subordinate SOE companies must complete reforms by the end of November, China Economic Net reported on Monday.
Two methods
Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times on Monday that many Chinese SOEs are in the “disaster areas” of heavy industries burdened with severe overcapacity, and SOE reforms, such as mergers between major industrial competitors, can help improve the situation by transferring companies’ focus from malign competition to improving efficiency.
“Usually, there are two methods for SOE reforms. One is industrial mergers such as the merger between Shanghai Baosteel Group Corp and Wuhan Iron and Steel ( Group) Corp to create Baowu Steel Group,” Dong said.
As of Friday, a total of 59 SOEs listed in the Shanghai and Shenzhen stock markets have suspended trading due to major asset restructuring, according to the cs. com. cn report. Most of the companies are in industries like real estate and steel, the report noted.
Dong said that the other method for reforms is for SOEs to acquire companies in relevant industries so as to enrich their upstream and downstream businesses, but this is not always feasible, especially in industries like steel.
Many local governments also have made listing a focus for the SOE reforms for 2017. For example, the branch of SASAC in East China’s Shandong Province issued a guideline noting that more than 10 provincial SOEs in Shandong should get listed by the end of 2020, and the rate of asset securitization should reach above 60 percent by then, the cs. com. cn report noted.
Clear goals
Liang Jun, a research fellow at the Guangdong Academy of Social Sciences specializing in SOE reforms, said that the government should be clear about the goals for the SOE reforms and the efforts to make them more market- oriented.
“Mixed- ownership reform is one of the ways, and one which is quite suitable for China. But in many cases, private investors do not really have a say in SOEs’ management mechanism. This is not right. I think after reforms, private investors should have a seat on an SOE’s board, allowing them to vote on major decisions,” he noted.
“I think if the private investor’s opinion is contrary to that of other board members, it can send a signal to the regulators that the company has drifted away from market needs,” Liang said, adding that a third- party supervision mechanism for SOE leaders should also be established.
According to Liang, some of the current SOE reform measures should be cut, like employee stock ownership plans. “Those plans might spoil SOE employees,” he said.
An employee in a Shanghai- based SOE told the Global Times on Monday that if she gets a certain percentage of her company’s shares, her use of them would depend on her company’s business.
“If the company’s market performance is bad, I would sell the shares,” she said.
“After reforms, private investors should have a seat on an SOE’s board, allowing them to vote on the company’s major decisions.”