23 March 2019
Chinese authorities are now said to be more open to allowing state enterprises more operational freedom. Photo: Reuters
Chinese authorities are now said to be more open to allowing state enterprises more operational freedom. Photo: Reuters

China mulls giving SOEs more autonomy

The State-owned Assets Supervision and Administration Commission (SASAC), China’s top regulator of state assets, has vowed to loosen its grip on government-owned companies.

Not long ago, Beijing was trying to boost the role of state firms in the economy.

But all of a sudden, Weng Jieming, deputy director of SASAC, said the regulator is working on new rules to support SOE reforms, state media reported.

The regulator is going to shift its hands-on approach to one with more delegation.

This means the government will behave more like shareholder, rather than getting heavily involved in setting SOEs’ strategic direction and management details as it is now.

To make this work, it is believed that SOEs have to introduce more private capital or even let private capital take up controlling stake.

That would enable the government to take a backseat and let the SOEs operate like real commercial organizations.

Weng pledged that authorities would allow mixed-ownership SOEs more autonomy in running their businesses.

China has been shifting from planned economy to market economy since its economic reform and opening-up four decades ago. But the bottom line is that state capital has to play a key role in the economy. Yet decades of experience has proved that SOEs are less efficient than private firms.

If the government continues to let SOEs expand, that would not only undermine the return of state capital, it will also waste a lot of resources.

A slowing economy is probably a primary factor behind the move to count more on the private sector. Having been accused of subsidizing SOEs in their competition with US firms, the planned reform may also be directed at easing the trade tensions.

A bold SOE reform can boost economic growth significantly. The new approach, somewhat like that of Singapore’s Temasek model, might be the best way to keep a big presence of SOEs while maximizing their efficiency. However, it remains to be seen if Beijing truly means what it said.

This article appeared in the Hong Kong Economic Journal on Nov 16

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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