Policy design to propel China's SOE reforms

The restructuring of China's state-owned enterprises (SOEs) will proceed rapidly in 2015 as the government is set to unveil 10 policies for SOE reform.

Chu Xuping, head of research for the State-owned Asset Supervision and Administration Commission (SASAC), described "major breakthroughs" in the overall plan for SOE reform.

"The majority of policies will be rolled out before Spring Festival," Chu said. Spring Festival falls on Feb. 19 this year.

The 10 policies include a guideline for reform, a general plan for state asset management, plans for mixed ownership and improvements to the evaluation system .

UBS chief China economist Wang Tao expects SOE reform will be obtained through improved corporate incentives and private participation.

"We expect restructuring to be gradual as the government tries to balance growth and restructuring, overcome resistance from various interest groups, and address redundancy and debt issues," Wang said.

Deteriorating SOE performance, general resilience in the labour market, and an improving social safety net may help the government move faster, she said.

Combined profits of China's SOEs rose 4.5 percent to 2.24 trillion yuan (about 365 billion U.S. dollars) in the first 11 months of 2014, slower than than 8.2 percent growth reported in the same period of 2013.

Resolving key issues will raise the efficiency and competitiveness of SOEs, according to a statement after the central economic work conference in December that set the tone for 2015.

The central goal is giving the market the decisive role in allocating resources, and improving overall efficiency. Reforming SOEs is crucial as they are seen as key to sustained growth and stability.

Li Jin, deputy director of the China Enterprise Reform and Development Society, believes mixed ownership will break the monopoly and increase efficiency. Wang agrees that mixed ownership will change management incentives, improve profitability and cash flow, and increase government revenue.

Last year, Sinopec, PetroChina and State Grid all released plans to open some sectors to private investment. The government has also decided to grant more rights to corporate entities in 2015.

Zhang Yi, head of SASAC, said in December that the role of SOEs as independent market entities should strengthen by giving them due rights and removing unnecessary burdens.