State-owned enterprise reform likely to be modest, researcher suggests

Top central government researcher signals leaders will discuss changes to SOEs, but their grip on key economic sectors won't loosen

PUBLISHED : Friday, 18 October, 2013, 11:33pm
UPDATED : Saturday, 19 October, 2013, 3:18am

A leading central government researcher has called for the overhaul of state-owned enterprises but avoided saying whether their special status should be scrapped altogether.

The comments were made in an article by Cheng Wei, of the State-owned Assets Supervision and Administration Commission, and posted on its website, indicating reform of the sector might be discussed at the third plenary session of the party's Central Committee next month.

Cheng suggested seven changes to state-owned enterprises (SOEs): shifting the division between government and business; modernising the company management system; adopting market-based recruitment to attract talent; reducing the SOEs' role in carrying out the government's economic agenda; nurturing incentives for innovation; building corporate branding; and turning some giant SOEs into multinationals.

Cheng, head of macroeconomic and strategy research at the commission's Research Centre, suggested the central government abandon its practice of making political hires for top executive positions, saying it hindered efforts to attract globally competitive talent. He said more independent directors should be appointed to SOEs' boards to supervise management.

The long-running question of whether state monopolies should be broken up gained new currency when the head of the state-ownedassets administration, Jiang Jiemin , was recently placed under investigation for alleged serious disciplinary violations. Jiang also served as the former chairman of state-owned China National Petroleum Corporation (CNPC).

Some economists say state monopolies' control of key economic sectors impedes growth and their markets should be thrown open to competition. However, reform has been slow mainly due to resistance from powerful vested interests.

While many economists expect some reform proposals to be unveiled at the plenary session, they have also sounded a note of caution over radically changing the structure of SOEs.

"We think the November meeting will set a comprehensive framework for reforms over the next few years," said Tao Wang, chief China economist at UBS Securities. But he doubted any details on significant changes to SOEs would be announced.

The world's second-largest economy is characterised by government-controlled giants that dominate major sectors.

For instance, three state-controlled giants, CNPC, Sinopec and the China National Offshore Oil Corporation have monopolised the energy sector, and the same can be found in other key businesses such as telecoms.

Zhu Haibin, JPMorgan's chief China economist, said that at the November meeting party leaders were expected to unveil changes in five major areas - administration, finance, fiscal policy, the land and household registration system and resource pricing. Other reforms would take a lower priority, Zhu said.

"SOE reform is unlikely to proceed significantly in the near term," he said. "We expect the November meeting will simply reiterate [points] to enhance the vitality of SOEs," Zhu said.