SOEs to set sights on global marketplace

Workers made clothes at a private company in Dexing, Jiangxi province. In 2012, the proportion of private enterprise in China's GDP exceeded 60 percent.[Photo / China Daily]

Private ownership is expected to play a bigger role in boosting a domestic economic revival while State-owned enterprises in key industries will become a global presence, experts have predicted.

As China's government accelerates economic reform, a new framework for State and private enterprises has emerged.

"Private capital is currently playing a crucial role in the national economy, especially as GDP has sagged recently," renowned Chinese economist Mao Yushi said.

"Maintaining stable economic growth actually relies on private companies instead of SOEs," Mao added.

In 2012, the proportion of private enterprise in China's GDP exceeded 60 percent. As of September 2012, registered private enterprises totaled more than 10 million in China, up 12.6 percent year-on-year, according to the All-China Federation of Industry and Commerce.

During the recent slowdown, one of the government's most effective ways of boosting the economy has been to facilitate the development of private enterprise.

Speaking to SOE executives and private entrepreneurs at a State Council meeting earlier this year, Chinese Premier Li Keqiang promised to provide privately owned companies with platforms comparable to those of State-run and foreign firms.

Li said China still needs to promote market-oriented reforms. Although there may a few problems at first, the new competitive rules will be effective in the long run, he said.

Protecting privately owned companies is the right move for the government to make, Mao said.

Meeting with experts at Tsinghua University last week, President Xi Jinping said that the government will lay out a general plan of comprehensive reforms at the upcoming Third Plenum of the 18th Chinese Communist Party Congress.

In a report on the Third Plenum, Standard Chartered Bank said a plan targeting economic growth will be released.

"The Chinese government should take more steps to let private capital get involved in infrastructure construction and investment," the British bank said.

"Leading private companies involved in railways, healthcare and other industries will raise fair-market competition and help change the advantageous operational environment of the SOEs," it added.

Easing the entry of private capital into the financial, energy and railway sectors will soon become the new focus of China's economic reforms.

Infrastructure investment is regarded as a major stimulus for economic recovery.

For the third quarter, GDP expanded 7.8 percent over the same period a year earlier, compared with the second quarter, when it grew by 7.5 percent.

Standard Chartered Bank reported that the main strategy of reform on SOEs also lies in changing their business environment, which means that only the fittest survive.

"Enterprise development must experience marketization, securitization, socialization and internationalization," said Cheng Wei, director of macroeconomy and strategy development at the State-owned Assets Supervision and Administration Commission research center.

"Highly efficient State-owned assets deployment and industrial structure deployment are key to opening up industries and breaking up monopolies," Cheng said.

"Establishing and developing competitive global corporations is the target of reform for the central SOEs," Cheng added.

Huang Shuhe, vice-chairman of SASAC, said that as China's influence has risen on the international stage, there is a need for industrial conglomerates with strong competitiveness matching China's global stature.

SASAC set as its top priority the development of 30 to 50 of 112 central SOEs into top multinationals during the 12th Five-Year Plan period (2011-15).

Forty-four central SOEs are listed on this year's Fortune Global 500, with China Petrochemical Corp, China National Petroleum Corp and State Grid Corp among the top 10.

In a bid to accelerate central SOEs' globalization, SASAC is requiring them to increase overseas business income to half of total revenues, up from fewer than 38 percent at present.

"We will spare no effort to promote the international competitiveness of the central SOEs, which are requested to shift from low-end industrial chains and concentrate on premium overseas markets," said Liu Nanchang, director of the Performance Evaluation Bureau at SASAC.

Overseas assets of Chinese companies, which total more than 15,000 branches worldwide, are valued at more than $1 trillion, with half coming from State-owned enterprises, according to the commission.

SASAC said that as a mainstay of the domestic economy and China's "go abroad" process, central SOEs are destined to become worldwide industrial giants that will be competitive with foreign companies.

SOEs that are pillars of the economy include those engaged in telecommunications, power generation, petroleum, aviation and shipping.

In April, SASAC required central SOEs to increase profits by at least 10 percent this year. Data from the Ministry of Finance show that from January to September, central SOEs generated total profits of 1.3 trillion yuan ($213.7 billion). an increase of 16.3 percent year-on-year.