Corruption probes raise state-owned enterprise reform hopes
A scandal that has taken down the head of the State-owned Assets Supervision and Administration Commission (SASAC) just ahead of the Communist Party's key autumn economic planning meeting has raised hopes among investors anxious to see a trigger point for the long-promised break-up of state monopolies.
Expectations for a "big bang" reform move have been running high since President Xi Jinping and Premier Li Keqiang completed the once-a-decade leadership transition in March. They pledged to rebalance the economy and boost the private sector's role in it.
The investigation into Jiang Jiemin , who oversees the mainland's 100 biggest corporations, immediately after a corruption investigation was launched into the party's former security chief and a clutch of senior executives at China National Petroleum Corporation (CNPC), has only added to the weight of anticipation - especially given the link to the prized oil sector.
Analysts say the risk of disappointment for reform-hungry investors is larger than ever.
"So far, we have only seen a political power struggle in the top echelon. It is not clear where this will lead, and it does not mean the fundamental problem with the system will change," Zhu Songbin, managing director of Beijing-based energy sector consultancy Song Lin Group, said.
"Most reformists can only wait and see what happens after the house-cleaning," he told the South China Morning Post.
November is arguably the key date, when the party holds the plenum meeting of the 18th Party Central Committee. The so-called third plenum has sometimes been used as a staging point for major economic reform programmes.
Stephen Green, head of Standard Chartered Bank's China research team, cautions against expecting precise detail to emerge from the meeting.
In a new report he nevertheless urges investors to anticipate a meeting heralding significant change - but not in state-owned enterprise reform.
"We do not expect SOE reform to be explicitly discussed in the 2013 Third Plenum document. The subject is too sensitive. We think of SOE reform as a Darwinian process rather than something to be prescribed in a document or tackled head-on," Green wrote.
The government's plans for reform were well-telegraphed in a report published jointly by the State Council and the World Bank in early 2012. It enumerated the key reforms needed to put the world's second-biggest economy on a sustainable growth track by 2030.
"Corruption at SOEs has become so common. It doesn't make much sense to analyse the reasons behind one single case. More importantly, we need to analyse the systematic reasons behind those corruption cases," said Gary Liu Shengjun, executive deputy director of the CEIBS Lujiazui Institute of International Finance.
Though the central government has issued many policies to open markets wider, its progress is slow mainly due to resistance from the powerful SOEs - the top executives of which carry party ranks at ministerial level in many cases.
Meanwhile, going too hard after SOEs would put too much near-term strain on an economy fundamentally geared to the performance of state giants.
Many analysts say it would make meeting the national growth target of 7.5 per cent impossible. That rate would be a 23-year low.
Many analysts doubt change will come soon.
"China will continue its market-oriented reforms, including a gradual loosening of monopoly in the strategically important sectors. But the state will still retain strong control," said Kai Hu, senior credit Officer of the Corporate Finance Group with Moody's Investors Service.
At best, the corruption investigations are reminders that the cosy days of state monopolies are numbered, said Standard Chartered's Green.
"The likely outcome [and the goal of reformers] is that SOE reform will be facilitated, quietly and indirectly, by other reforms. The only problem with evolution is that it usually takes ages - and the results cannot be predicted," he said.