SOE reform essential to a stable and sustainable economy

Economists believe that as China continues to promote the reform of state-owned enterprises (SOEs), considered pillars of China's economy, there is greater potential for SOEs to rebalance the Chinese economy and sustain its long-term growth. [Special coverage]

In the first three quarters of 2013, SOEs have performed well both in profits and business revenues thanks to China's decades-long SOE reform. A total of 67 SOEs are listed on this year's Fortune Global 500.

SOEs, excluding financial institutions, saw profits rise 10.5 percent year on year in the first three quarters to 1.77 trillion yuan (287.7 billion U.S. dollars), according to figures from the Ministry of Finance (MOF).

The MOF data also showed that the business revenues of SOEs, excluding financial institutions, stood at 33.71 trillion yuan in the past nine months, up 11 percent from the same period last year.

Non-financial institution SOEs paid 2.69 trillion yuan in taxes and fees in the first three quarters of 2013, accounting for one third of national tax revenues during the same period.

For centrally-administered SOEs, statistics from the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) showed that profits totaled 992.7 billion yuan in the first three quarters, up 14.4 percent year on year.

"Practice has proved that the stable development of SOEs is the guarantee of stable economic development in China as well as sound social development," said Li Jin, a senior researcher with the China Enterprise Research Institute.

He attributed the strong performance of SOEs this year to their improved engagement in the market and investment in the technological innovation of SOEs.

Official data showed that investment in technological innovation of centrally-administered enterprises has reached over 300 billion yuan, which has helped to sharpen the competitive edge of SOEs in the market as well as raising their global profile.

However, the SOEs lost their position as the country's most profitable sector in 2012, when China COSCO Holdings Co., the country's largest shipping company, lost 9.56 billion yuan after a deficit of 10.45 billion yuan for 2011.

Overcapacity, inefficient cost control and slow industrial upgrading can be blamed for the slowdown, according to Li Jin.

SASAC has undertaken a series of reform measures, including restructuring the business of SOEs, directing state assets toward more promising sectors, supporting SOEs in going public as well as encouraging private capital to invest in state-owned companies.

SASAC has guided SOEs to sell off underperforming assets, advocated mergers and acquisitions of major SOEs to cultivate and develop enterprise groups with international competitiveness, and promoted improved management of SOEs.

A total of 52 centrally-administered SOEs have established standard boards of directors, with senior executive positions in 141 centrally-administered enterprises open to recruitment of worldwide candidates, and 600,000 SOE employees from the common recruitment examination, official data showed.

So far, 90 percent of state-owned and state holding enterprises have become corporations and shareholding firms. A total of 56 percent of the total assets, 70 percent of the net assets and 62 percent of the business revenue of all centrally-administered SOEs now belong to listed companies.

SASAC statistics showed that 71 centrally-administered enterprises have introduced private investment worth 682 billion yuan in recent years in nine sectors, including petroleum and petrochemicals, electricity and military industries.

It is expected that the Third Plenary Session of the 18th Communist Party of China Central Committee, scheduled from Nov. 9 to 12, will make breakthroughs in the reform of SOEs.

The main targets of SOE reform are to separate government functions from the functions of SOEs, and to improve supervision of SOEs while continuing to raise the competitiveness of SOEs through innovation in technology, management and brand building.

"We will stick to reforming SOEs, helping them to engage the market and improve their corporate governance to transform China's growth pattern in a timely manner and sustain China's economic growth," said Zhang Yi, Party Secretary of the CPC committee of SASAC.