SOEs given freedom to choose top execs

Pilot program also will allow companies to make decisions about investments

China will accelerate State-owned enterprise reform by giving these companies more freedom to invest, introduce private capital and choose top managers, the State-owned Assets Supervision and Administration Commission announced on Tuesday.

The country will start a four-stage trial program involving six SOEs, and experience from this program will be used more broadly in the future, said Peng Huagang, director of the SASAC Research Bureau.

The overall program will cover capital investment, the mixed-ownership model, the appointment of top executives and safeguards against corruption.

The agency picked the State Development & Investment Corp and China National Cereals, Oils and Foodstuffs Corp as the pilot companies for State capital investment.

Zhou Fangsheng, vice-director of the China Enterprise Reform & Development Society, said the companies, both of which have established "mature investment structures", may take stakes in other SOEs.

Cofco said in a statement on Tuesday that it is working on a timetable for the trial. It has sought to establish a modern management system in recent years through mergers and acquisitions, restructuring and establishing a board of directors.

From 2005 to 2013, Cofco entered into 50 M&A deals with a total investment of 14.6 billion yuan ($2.35 billion).

Meanwhile, China National Building Materials Group and China National Pharmaceutical Group Corp will start pilot programs for mixed-ownership models.

Zhou said these two companies are in fully competitive industries, and they've made "great efforts" to introduce private capital in recent years.

Those two companies, plus China Energy Conservation and Environmental Protection Group and Xinxing Cathay International Group, will get more freedom in choosing top executives.

Large SOEs' executives are traditionally appointed by the government.

Peng said SOEs should establish a modern compensation system for managers that reflects performance, risk and responsibility. Doing so will help companies become more competitive in the international market.

"SOE reform is facing many obstacles and problems that need to be solved through practice and experience," he said. "Enterprises should be the drivers of change."

Peng also said that the government will streamline or abandon some approval processes and yield those rights to the companies in the future. Details are still under discussion, he said.

The fourth part of the trial involves unspecified changes to safeguard against corruption. The SASAC will send discipline inspection teams to two or three companies that were not identified.

Investors reacted positively to the announcement. Cofco Tunhe Co rose 3.3 percent to 5.30 yuan per share on the Shanghai Stock Exchange, and Cofco Biochemical Co's shares soared 8.9 percent to 4.66 yuan on the Shenzhen Stock Exchange.

The Shanghai index advanced 0.2 percent, while the index in Shenzhen was up 0.35 percent.