SOE Fast

By+Wang+Jun

the reform of state-owned enterprises（SOEs） is expected to speed up. As its topdown design emerges， China may make significant steps forward in the SOE reform this year， and the reform may be carried forward across the country， said Peng Jianguo， Deputy Director of the Research Center of the StateOwned Assets Supervision and Administration Commission of the State Council （SASAC）.

The Central Economic Work Conference held in December 2014 required that the reform of SOEs must be targeted at improving their vitality， efficiency and core competitiveness of SOEs. It also detailed that they must establish a modern corporate system.

Liu Xiaoxuan， Deputy Director of the Department of Microeconomics of the Chinese Academy of Social Sciences， told the 21st Century Business Herald that the present reform of SOEs advances slowly.

Ji Xiaonan， chairman of boards of supervisors of large key SOEs at SASAC， also thinks that the current absence of a guideline has impeded the progress of SOE reform.

Chu Xuping， Director of the SASACs Research Center， said some SOE reform schemes may be publicized before the Chinese Lunar New year， which falls on February 19 for this year.

Peng said SOEs showed enthusiasm for reform in 2014， and they have made some preparations in investigation and framing reform plans. Once the scheme is issued， SOEs directly under the management of the SASAC may soon begin operations. More companies will be included into the pilot program of mixed ownership reform in 2015.

Local reform plans

Previously， without a national-level scheme， local authorities could hardly make breakthroughs in the reform of SOEs， said Peng. But this year， the reform may be carried out throughout the country.

According to the 21st Century Business Herald， 22 provinces and municipalities have issued guidelines on the reform of SOEs， and some provincial capitals， such as Nanjing and Changsha， have also issued documents guiding SOE reform.

Most of their guidelines focus on issues such as mixed ownership， classified supervision， stock incentive compensation， employee stock ownership， corporate governance structure and establishment of stateowned asset investment companies. Most of the provinces and municipalities have set up detailed targets for reform.

For instance， in the issue of mixed ownership， Gansu Province proposes that mixed ownership account for 60 percent of the state-owned economy by 2020， and Jiangsu Province proposes the proportion reach 70 percent within five years.

Beijing requires that by 2020， more than 80 percent of the state capital must be concentrated on providing public services， strengthening infrastructure construction， developing strategic industries， protecting the environment and safeguarding peoples wellbeing. Shanghai， Jiangxi， Gansu， Jiangsu， Chongqing， Sichuan and Qinghai all require that more than 80 percent of state capitals must be put into key sectors.

Mixed ownership

SOE reform may be delayed due to some disputes in key sectors. Whether mixed ownership reform should first be carried out in wellperforming SOEs is a major one.

Chen Qingtai， former Deputy Director of the Committee for Economic Affairs of the Chinese Peoples Political Consultative Conference， said the country must take the opportunity of developing mixed ownership to improve corporate competitiveness with both the resources of SOEs and the vitality of private enterprises. Through the introduction of new investors， industries of natural monopoly can separate competitive businesses， and effective corporate governance can be established in both SOEs and private enterprises via mixed ownership.

Peng thinks that by getting listed in the securities market， some SOEs have experienced mixed ownership， but such a change extends just to form， while the management pattern has not yet changed.

At a forum on SOE reform held in Guangzhou， capital of south Chinas Guangdong Province， in December 2014， Gao Minghua， Director of the Research Center for Corporate Governance and Enterprises at Beijing Normal University， said only SOEs in the competitive industries are suitable for the mixed ownership reform， while non-profitable SOEs and those in industries of natural monopoly must be wholly state-owned or state-holding.

Chu suggested that headquarters of central SOEs be wholly state-owned. He also believes that the government must hold at least 51 percent of stakes in most of the SOEs.

According to Chen， in the governance of mixed ownership， the government must pay attention to the following aspects： excessively big state stakes must be separated and held by several shareholders； all the shareholders must perform their rights through shareholdersmeeting and board of directors； the role and position of board of directors must be clearly defined； managers must be hired and dismissed by board of directors； and SOEs must obey state laws and be subject to supervision of government agencies.

In July 2014， the SASAC incorporated China National Building Materials Group Corp. and China National Pharmaceutical Group Corp. into a pilot program for mixed ownership. Song Zhiping， Chairman of China National Building Materials Group Corp.， said mid- and long-term incentive in the management team and employee stock ownership should be introduced in enterprises of mixed ownership.

Classified supervision

“Accurate classification is an important step for SOE reform in the future，” said Liu Jipeng， Director of the Capital Research Center at China University of Political Science and Law. However， disputes remain in classified supervision. In Shanghai， SOEs are divided into three categories： competitive， functional and public service-oriented. In Sichuan Province， SOEs are divided into two categories： competitive and functional. Most other provinces or municipalities divide SOEs similarly into three categories under different names.

Nationally， there are differing opinions on whether SOEs should be divided into two or three categories. Chen thinks state capital should be divided into two categories for different functions： policy-oriented functions to realize government goals and profit-oriented functions to protect peoples wellbeing and provide public services. The proportion between the two categories must be readjusted in accordance with the real conditions.

Liu Xiaoxuan said the biggest problem for classified supervision is that the classification is not yet clear， and the categories are not clearly defined.

Peng said one of the reasons for the disputes in classified supervision is that an SOE may be involved in different businesses， making it difficult to be classified.

According to Peng， most central SOEs will fall into the competitive and functional categories， while enterprises such as China Grain Reserves Corp. and those for water and heat supplies fall into the public services category. The Central Government must conduct classified supervision and assessment and formulate different salary strategies in these SOEs.

Take salary strategy as an example. In the SOEs of competitive category， salaries will be decided in accordance with the business performance and appreciation of state-owned assets. In those of public service category， salaries will be decided in accordance with the fulfillment of public benefit indicators， while in those of functional category， both indicators will be considered when deciding salaries.