Leaders want to cut stake, but not say, in SOEs
China is planning a shareholding system that ensures better control on managers
China's leaders are grappling for a way to end a decades-old programme of state ownership without sacrificing a say in management, according to a senior official with the State Owned Assets Supervision and Administration Commission (Sasac).
Concerned with rising corruption, mismanagement and bad debts, Beijing is eager to introduce a shareholding system that imposes better control on managers of state-owned enterprises (SOEs).
The official said Sasac was looking at ways to sell down its government holdings in SOEs below 50 per cent, pointing to European governments which have successfully reduced holdings in key industries, such as airlines, without sacrificing a say in management.
The official also cited American companies, where the largest shareholder may have less than 2 per cent of the shares but wielded a significant say in the company's strategy.
'That is really something for us to learn,' the Sasac official told investors at a conference sponsored by investment bank BNP Paribas.
So far, initial public offerings of state companies have been limited to selling less than 30 per cent to the public, although in most cases, this figure is closer to 15 per cent. A sale of most of the equity of the SOEs is still considered an act of dissent among policy-makers.
The Sasac official said the third plenum of the 16th Party Congress had provided support for reduced state ownership.
'[President] Hu Jintao said we can use the absolute shareholding system, 51 per cent, or maybe use a relative equity structure of 30 per cent,' he said, adding that as little as 2 per cent had worked effectively in the west.
He also admitted the commission faced an increasingly difficult role as it undertook a delicate balancing act between its position as overseer of the country's ageing state industries and the rising power of local governments.
The State Council has asked Sasac to perform six tasks: give guidance on asset reform, send supervision teams to investigate local SOEs, appoint SOE chief executives and senior executives, push the SOEs to be profitable, instruct the provincial asset commissions and generally oversee the reform process.
'In the past, we talked about what needs to be done in line with the party,' he said. 'Nowadays, the party should do things in line with the requirements of corporate governance. That is a major change.'
However, conflicts among battling bureaucracies have made Sasac's role increasingly difficult.
'Some chief executives of SOEs are members of the Central Party Committee at the ministry level. How do we deal with them?' the official said.
'How do we handle the relationship between this commission and others, such as the economic planning group, the central bank and other financial institutions?'
He also said it had become more difficult for Beijing to issue orders to provincial officials and expect them to be followed automatically.
'In the past, if there was a problem with an SOE at the central level, we could simply shift responsibility to the province. We can't do that anymore,' he said.