23 September 2018
The entry of private and foreign capital will allow changes to creep into the operations of state-owned enterprises
The entry of private and foreign capital will allow changes to creep into the operations of state-owned enterprises

POLICY WATCH: Mixed ownership the core of SOE reform

In their recent plenum, the Communist Party of China’s top leaders have made it clear that state-owned enterprises (SOEs) will continue to play a dominant role in vital sectors of the economy.

But at the same time, the party leaders pledged to reform the SOEs to make them more efficient and competitive in order to enhance their contribution to the real economy. The way forward is to adopt a mixed-ownership model for these industrial and financial behemoths.

This implies that although the state will continue to exert its influence on SOEs, the entry of private and foreign capital will allow changes to creep into their systems and operations, thus enhancing their efficiency.

Chu Xuping{楚序平}, head of the research center of the State-owned Assets Supervision and Administration Commission (SASAC), said that by 2020, the majority of SOEs will have been transformed into mixed-ownership enterprises.

Chu also said that state capital will participate in the operation of enterprises either as minority or majority shareholders, or through the purchase of preferred shares and golden shares. This implies that the state will consider itself as a corporate shareholder in relation to SOEs, rather than as owners with absolute decision-making powers over such enterprises.

This is the first time a government official has disclosed some details of the proposed SOE reform after the third plenum of the 18th CPC central committee in early November. His remarks are in line with the communique issued at the end of the plenum, in which the party leaders acknowledged the market’s “decisive” role in allocating resources, implying that the state will ease its grip on the economy.

He said the central government will strive to promote the integration of industrial capital and financial capital so as to ensure adequate financial support for the real economy.

A batch of group companies dedicated to both industrial development and financial services will be set up to promote efficient use of funds and reduce operating costs.

According to the ruling party’s reform roadmap, the government will establish a number of state-owned capital operating companies and support the transformation of qualified SOEs into state-owned investment companies, as part of efforts to develop a diversified ownership economy.

State-owned enterprises will fall under three major categories: public utilities such as electricity, water supply, gas supply, public transport, railway and airport operations; protected enterprises, or those engaged in businesses related to special resources and the national security such as financial, petroleum, telecommunications and military; and business enterprises, which are entirely engaged in fully competitive market activities.

The CPC communique states that state capital will continue to maintain control over firms in “natural monopoly” sectors.  However, the government will adopt a separation of SOE ownership and operations, as well as separation of government and private capital, while at the same time tightening its role as a regulator.

The government is also striking the balance of the interest of the public and the shareholders of SOEs.

State-owned firms are also required to boost their dividend payments to the central government to 30 percent of their earnings, up from the current range of 5 to 20 percent. Such an increase is meant to enhance their contribution to social welfare and social security.

– Contact the reporter at [email protected]




EJ Insight writer

EJI Weekly Newsletter

Please click here to unsubscribe