China deepening reforms to revive SOEs

East China's Jiangsu Province rolled out guidelines on deepening reforms of its state-owned enterprises (SOEs) earlier this week amid efforts to revive the often monopolistic and static entities.

The provincial state-owned assets supervision and administration commission said it would order one SOE to set up an investment company to hold stakes in the former in an attempt to overhaul the state-asset management mechanism.

In the future, state-owned investment companies will become investors for SOEs and report directly to the state-asset watchdog. The SOEs will be left to operate their businesses without existing government interventions.

Jiangsu's latest move epitomizes the state-asset reforms outlined in the third plenary session of the 18th Central Committee of the Communist Party of China late last year.

The State-owned Assets Supervision and Administration Commission of the State Council, or the cabinet, has since pledged to transform the two-tier state-asset management system into three-tiers with reforms being piloted nationwide.

Over the past few years, the commission has become the target for fierce backlash because of its excessive interventions into the central SOEs.

Currently, several central SOEs and around 20 provinces and municipalities nationwide have rolled out state-asset reform plans, including setting up state-asset investment companies and inviting private capital.

Li Jin, chief researcher with the China Enterprise Research Institute, said that by setting up a new tier, the state-owned investment companies could effectively separate the businesses from authorities, reducing the watchdog's excessive interventions into corporate operations.

Excessive government interventions into the business activities are a legacy of the old-fashioned planned economy.

In 1998, China streamlined the central government ministries and downgraded many to industry associations in a bid to reduce government interventions into corporate operations.

"In 2003, the State-owned Assets Supervision and Administration Commission took over as the new watchdog of the SOEs and the defects of the planned economy then lingered," said Li.

Under the new reforms, the watchdog will refrain from direct intervention and the management teams of the SOEs will run the business on their own, he said, adding that the executives will be recruited rather than being nominated by the authorities.

Yang Hongyan, deputy director of Tianjin's state-owned assets supervision and administration commission, said the state-owned investment firms can hold majority and sometimes even minority stakes in the current SOEs.

"We have board members from non-state investors," said Yu Xiaohui, the PR chief of the state-owned Bohai Light Investment Corp. in Tianjin that holds majority in 86 companies and minority stakes in another 86.

"With joint governance, both the state and private capital can get a win-win outcome," said Yu.