25 May 2019
Shanghai has taken the lead in state enterprise reform in China. Photo: Reuters.
Shanghai has taken the lead in state enterprise reform in China. Photo: Reuters.

POLICY WATCH: Shanghai takes first crack at SOE reform

Shanghai has become the first local government in China to unveil detailed guidelines for state-owned enterprises (SOEs) reform following a call by the nation’s top leaders last month to enhance the efficiency and sharpen the role of state firms.

Authorities hope the initiative will inject new vitality into government entities, pave the way for more private participation in key sectors and foster the development of new strategic industries in the country’s financial capital.

In a document posted on the municipal government’s website on Dec. 17, officials also indicated that they will let market forces have a bigger hand in determining the future of SOEs, with reduced government intervention. The state will focus its efforts on market supervision and regulation, rather than day-to-day operation of government-owned enterprises. 

Local Communist Party chief Han Zheng, who is spearheading the reform effort, said the plan will unleash the huge potential of Shanghai’s SOEs and remove the bottlenecks for the city’s future development.

Shanghai’s state-owned assets are worth about 10 trillion yuan as of now, after robust growth in recent years. In 2012, state-owned enterprises contributed more than 20 percent of the city’s gross domestic product and also accounted for a significant chunk of new fixed-asset investment and tax revenue. Five local SOEs also figure among the top global 500 enterprises.

However, many state firms still don’t have the muscle to operate in a highly competitive and free-market environment. Top managers often have an old mindset, viewing their firms as just an extension of the government. Conservative altitudes have led to inadequate investments in strategic emerging industries and a poor record in tapping new markets.

The reform guidelines aim to transform the SOEs in a more market-driven economy, while placing an emphasis on professionalism and exploring global market opportunities. The government aims to see 80 percent of state-owned assets invested in emerging industries such as advanced manufacturing, green economy, modern service industry, infrastructure projects and businesses that have a bearing on peoples’ livelihood.

Under the plan, the government will gradually distance itself from the day-to-day operation of its enterprises without relinquishing ownership, paving the way for mixed ownership and private participation. Authorities also pledged to boost securitization of state-owned assets and promote mergers and acquisitions activities. State firms will also be encouraged to list themselves on the stock market.

Authorities will optimize spending of state-owned resources by directing most of the assets to strategic industries and public utilities.

Local state firms will be placed under three categories — competitive SOEs, functional SOEs and public utility SOEs. Competitive enterprises will aim for higher profits, functional category entities will focus on fulfilling their mandates, and public utility firms will enable stable functioning of the city, according to the guideline.

Modern corporate management systems will be introduced, allowing SOEs to hire professional managers for key positions, but excluding company chairmen and presidents, who will still be appointed by the government.

– Contact the reporter at [email protected]


EJ Insight writer

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