Reforms to rejuvenate State-owned enterprises

The State Council’s latest guideline on reform of the colossal central State-owned enterprises marks a concrete step toward acceleration of the broader reform of State enterprises. The guideline, released by China’s Cabinet on Tuesday, is a quick answer to the call by President Xi Jinping early this month for SOE reform to press ahead so it can achieve substantial results as soon as possible. It is also a continuity of the guideline on SOE reform made by the top Party and national leadership last September, which was widely seen as the top-level design for the country’s management of State corporate assets.

SOE reform has been an inherent part of the country’s more than 30 years of reform and opening-up. But the task has seldom been so challenging as it is today, as reform has stepped into the “deep-water zone” where it has been met with resistance from vested interests.

Admittedly, much headway has been made in SOE reform, especially central SOE reform, in recent years, with the number of SOEs sharply reduced and their managerial and supervisory mechanisms improved.

Still, the pace of reform of these economic juggernauts has been criticized for being too slow, as they are blamed for being inefficient in the use of funds despite receiving government funding and policy supports.

The latest guideline emphasizes restructuring of central SOEs and requires those with prolonged losses be forced out of the market in non-strategic sectors.

And it promises to sharpen the competitive edge of key enterprises in strategically important sectors, such as those which are an economic lifeline or essential for national security, and encourages them to explore innovative operational strategies. The State’s control in such crucial sectors, which is justifiable, will be maintained, if not strengthened.

Such a differentiated strategy, if implemented smoothly, will reduce the State monopolies in some sectors; it will also adapt the country’s SOEs to the latest technological revolution so that they become more globally competitive.

Such a reform philosophy has been in discussion for some years, but real progress has so far fallen short of public expectations.

Now the task facing the State-owned Assets Supervision and Administration Commission, the top regulatory body for SOEs, is to accelerate the pace of carrying out the reform agenda to “achieve substantial results as soon as possible”.