22 March 2019
China will maintain a tight grip on sectors such telecom while reducing the state's role in industries deemed less important. Photo: Bloomberg
China will maintain a tight grip on sectors such telecom while reducing the state's role in industries deemed less important. Photo: Bloomberg

POLICY WATCH: Improving the SOE shareholding structure

China’s state-owned enterprise (SOE) reform plan has several distinct elements. Among the more important ones is diversification of the shareholding structure of the firms through stock market listings and strategic partnerships with private investors. 

Efforts will be made to move to a mixed-ownership model, with the state capital directed only into sectors that are deemed vital to national interests. Industries seen as the lifeblood of the economy will continue to be shouldered by the government, but sectors that do not really need state intervention could see Beijing cut its shareholding or even exit completely.

The government will speed up the transformation of SOEs, especially parent companies, into joint-stock firms, while improving the overall shareholding structure of the state firms, Huang Shuhe, vice chairman of the State-owned Assets Supervision and Administration Commission, said on Dec. 19.

Authorities will promote mixed-ownership by inviting private capital and institutional investors. However, some SOEs, state-owned capital investment companies and capital operating firms that are vital to national security will still be wholly held by the government, Huang said.

State-owned enterprises have been playing an important role in the nation’s economy, especially in national security-related industries such as resources and telecommunications. The vital industries will remain in full control of the government, while others could see shareholding reorganization.

Overall, authorities aim to strike a better balance between state control and market forces. The initiative comes as critics have pointed to a conflict of interest in policy-making, as the government is the rule-setter as well as a player in the market. Reducing or ending the government control of SOEs is vital to ensuring better governance and improved efficiency at the firms, which can benefit from entry of private capital and new investors.

The government has set four categories to define whether an SOE needs to be under full government control or not. Firms that have a bearing on national security should remain in full state control, according to the guideline. For companies related to national economy development, or operating in key industries, the government will have to maintain majority control.

In SOEs involved in pillar industries and high technology sectors, the government can hold a “relative majority” of shares. In businesses that do not need to be controlled by state capital, the government can hold minority stakes or even exit completely, allowing private capital to take over.

Market watchers say such SOE categorization should pave way for the government to exit some SOEs. However, it may take some time for authorities to get a clear picture of the task on hand as some state firms operate across different sectors, making it difficult to define their status.

To deepen reforms, the government first plans to diversify investment resources of the SOEs to develop mixed-ownership, as well as upgrade the administration system of the firms. That could result in modernization of the firms’ management practices.

Meanwhile, the government also aims to boost the rate of return rate of state-owned assets. By 2020, the rate of profit generated by state-owned assets turned over to the state is targeted at 30 percent.

In order to tap private and social capital into state-owned assets, authorities will encourage more firms to go public. At the end of 2012, the total number of listed state-owned enterprises and their subsidiaries stood at 378. The proportion of non-state shareholdings has reached 53 percent of the total. Higher participation of non-state investment will help modernize the management of SOEs, the state-owned assets regulator has said.

– Contact the reporter at [email protected]


EJ Insight writer

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