Reform move for state enterprises runs up against old obstacles

Absence of a clear policy for pilot programme suggests enterprises will still be subject to party meddling and struggle to attract talent

PUBLISHED : Saturday, 19 July, 2014, 1:55am
UPDATED : Tuesday, 28 April, 2015, 11:23am

Beijing has finally unveiled a pilot programme to reform state-owned enterprises. The general buzz over the initiative notwithstanding, the only point of interest for veterans at state firms seems to be the lure of new openings at the top. An old tale will explain why.

It was 1996. Pan Ning was at the pinnacle of his career as chairman of state-owned Guangdong Kelon Electronic Appliance. Formerly a county-level official, Pan had not only built the country's most profitable fridge maker from scratch but had managed to get it listed in Hong Kong as well.

One day, he received an unexpected tea invitation from Zhu Xiaohua, the then head of China Everbright Group, the powerful conglomerate directly overseen by the State Council.

Everbright wanted Kelon's control, said Zhu over tea. In return, he promised Pan three personal favours: a salary increase, a management stake, and a Hong Kong identity card. All very tempting even today.

Managers of state firms are paid a fraction of what they are promised in the annual reports. Their share options, if any, are either rarely exercised or when exercised, put into a pool to be shared by all employees.

The pain of discretionary policy is clear when dealing with paperwork on the mainland

Their appraisals are not often done by the board or their supervisor, but by the Communist Party. And, their freedom to travel is so tightly controlled that an easy way to get things done in a state firm is to threaten a manager with travel restrictions until the task is completed.

So this promise of money, status and freedom would be too hard for Pan to refuse. So thought Zhu, called the "gold finger (Midas touch)" those days. He was the disciple of the then premier, Zhu Rongji.

But the 64-year-old Pan wasn't biting. "There's no way you can get them for me," he told Zhu and left.

Almost two decades have passed by and little has changed at SOEs. It is against this background that the State-owned Assets Supervision and Administration Commission announced the pilot scheme of central-level SOE reforms.

Of the six SOEs chosen, Sasac has picked two specifically to explore the possibility of hiring professional managers - as opposed to party officials - and to introduce staff shares and other market incentives.

The boards of these two companies will be given autonomy over three jobs - deputy general manager, chief accountant and board secretary. That includes selecting and appointing the candidates, tailoring their own appraisal system, and paying these managers performance-linked market salaries.

Understandably, the excitement over the reforms is high. Yet, the hope isn't.

First, there is no clear policy. Immediately on Xi Jinping's announcement of the grand plan to reform state firms in November last year, the commission promised to deliver a master policy. Eight months on, there is none. Instead, it has come up with the pilot scheme that it says will "discover the problems, address the problems, gather experience, and improve measures".

This broad and vague approach indicates the difficulties in squaring the circle - retaining party control in an efficient enterprise. This leads to the second issue: without a clearly defined policy, the reforms will be done on the basis of what the commission called "one corporate, one policy".

In layman terms, that means a case-by-case approval. Anyone who has had to deal with paperwork on the mainland knows the pain of discretionary policy. What's more, the aim here is a reform that will take power away from state officials and give it to the market - we all know how that works, or doesn't.

Third, the track record is poor. Since 2003, the party and Sasac have had various rounds of open overseas recruitments for more than 122 senior managerial jobs at SOEs, including general manager openings. This was meant to bring in fresh talent. The new hires from the market would be put within the party system. But who would give up a market job for lower pay and lose control over his passport to the party to boot? Naturally, the jobs had to be increasingly filled by SOE incumbents and the scheme was silently buried in 2011.

Given the tendency of the apparatchiks to meddle, there's serious doubt as to how real the promised autonomy will be as appointments and pay are to be vetted by the party. Veterans are sceptical.