Details to revamp underperforming state-owned enterprises unveiled
CHINA yesterday unveiled details of how it would restructure its mammoth state enterprise sector, including partial privatisation, as data pointed to a cooling in the world’s secondlargest economy.
The guidelines, jointly issued by the Communist Party’s Central Committee and the State Council, China’s cabinet, included plans to clean up and integrate some state firms, the official Xinhua news agency said.
Reform of underperforming state-owned enterprises is one of China’s most pressing needs. But if not handled well, the restructuring could lead to hundreds of thousands of people being laid off and social instability.
Xinhua said the plans included introducing “mixed ownership” by bringing in private investment, and “decisive results” were expected by 2020.
The government would not force “mixed ownership”, nor would it set a timetable, giving each firm the go-ahead only when conditions were mature, it said.
“This reform will be positive for improving the impetus of the economy and making growth more sustainable,” said Xu Hongcai, a director of the economic research department at the China Centre for International Economic Exchanges, a Beijing-based think-think.
Partial privatisation, he added, would help establish “check-and-balance and incentive systems” at state firms.
The government manages 111 companies centrally under the State-owned Assets Supervision and Administration Commission. Local governments own and manage about 25 000 state-owned companies and the sector employs almost 7.5 million people.
State firms would be allowed to bring in “various investors” to help diversify share ownership and more state firms would be encouraged to restructure to pave the way for stock listings, Xinhua said.
Private investors would be encouraged to buy stakes in state firms, buy convertible bonds issued by state firms, or swap shares with state firms, it said, adding that steps would be taken to curb corruption during reforms.
However, Beijing would have to convince entrenched interests at local, provincial and national governments to relinquish some control over state enterprises. It would have to entice investors to buy shares after one of the worst stock market crashes in China’s history.
Xinhua indicated full-scale privatisation was not on the cards, saying the government was aiming to “cultivate a large number of state-owned backbone enterprises with innovation capability and international competitiveness”.
The details were issued after the government said growth in China’s investment and factory output missed forecasts in August. The data followed weak trade and inflation readings, raising the chances that economic growth may dip below 7 percent in the thirdquarter for the first time since the global financial crisis.
“Overall, the economy is very weak and the central bank may have to continue cutting interest rates and banks’ reserve requirement,” said Zhou Hao, a senior economist at Commerzbank in Singapore. Zhou says growth would probably dip below 7 percent in the July-September quarter.
Some economists believe growth is already much weaker than official data suggests. – Reuters