Reforms to make SOEs world class, Li says
The mainland's state-owned enterprises would be among the world's best companies in seven to 10 years, Li Rongrong said yesterday in his first public appearance since retiring as the head of the country's SOEs last month.
Reforms to hold managers more accountable for their decisions and a greater emphasis on the efficient use of capital and resources had improved the performance of SOEs, the former head of the State-owned Assets Supervision and Administration Commission (Sasac) said at the World Economic Forum in Tianjin.
Li admitted that SOEs had an advantage over many private companies, given the government policy preference in market access and procurement contracts.
'I don't deny that unfairness exists in competition,' he said, but added that SOEs had their own unique problems. 'What I suffered from the most was the irresponsible attitude of managers.'
When a company was owned by everyone, he said, no one took responsibility for decisions.
Remnants of the centrally planned economy, many SOEs were weak and on the verge of collapse until a major effort in the 1990s thinned their numbers by closures, mergers and acquisitions.
Sasac was set up in 2003 to represent the state, as the largest shareholder, in the SOEs. During his seven years as the first head of Sasac, Li helped set up governance systems and tripled the assets of 123 central government-owned enterprises to 21 trillion yuan (HK$24.1 trillion).
The combined profits of those SOEs more than tripled to 815.1 billion yuan from 2002 to 2009.
This year, 30 central companies jumped into the ranks of the Fortune 500, including oil refiner Sinopec Group, ranked the seventh with US$187.5 billion in operating revenues, followed by State Grid Corp of China, China National Petroleum Corp and China Mobile Communications. In 2003, there were just six on the list.
Despite the improvement in the SOEs, criticism always surrounded Li.
When they do well, SOEs are attacked for winning contracts by taking advantage of their ties to government and their often monopolistic status. When profits are poor, they are scorned for their inefficiency.
'SOEs are different from private companies,' Li said. 'We have to hire more people than we need to in order to prevent unemployment leading to social unrest. When oil prices surged in 2008, we had to order refiners to cap their prices, otherwise retail oil prices would rise to a level unbearable to the national economy.'
Government ownership had been declining in SOEs with their stock market listing in the past few years, which would put more pressure on managers to improve profits and investment returns, Li said. However, he also said it was not good if the shareholding was too diversified.
He expected SOEs to become more important economic stabilisers, especially as the mainland was still 'at the primary stage of socialism construction'.