Bosses at China's state-owned enterprises face pay cuts of up to 50pc

Xi's bold reform plan aims to shake up top management at major state-owned enterprises

PUBLISHED : Wednesday, 20 August, 2014, 11:42pm
UPDATED : Thursday, 21 August, 2014, 9:08am

Officials in charge of China's state-owned enterprises face pay cuts of up to 50 per cent and new job descriptions under a reform plan approved by President Xi Jinping.

Xi said at a meeting on Monday that China needed to speed up reform targeting the salaries of top executives at SOEs. He also approved a seven-year overhaul of their management structure.

Sources say the reform plan involves two steps.

The first is to cut the salaries of top executives at major SOEs, particularly those in finance and banking. Some may have to take a 50 per cent pay cut.

The second step is to gradually change their job responsibilities. The government-appointed officials will probably join the board of directors. The day-to-day operations will be handled by senior managers recruited from outside, with salaries in line with international standards.

The new model will be similar to that of the MTR Corporation in Hong Kong. As the major shareholder, the Hong Kong government appoints three representatives to the board of directors to ensure the firm follows its policy direction. The day-to-day operations, however, are run by top managers hired through an open recruitment process.

The reform is to address public discontent over the ambiguous status of top SOE managers, particularly those in charge of the so-called central enterprises directly under the State Council. Most of these top executives carry a vice-ministerial or ministerial-level ranking that comes with perks and privileges. At the same time, they are paid like top Western business executives and earn many times more than their fellow officials.

There has been criticism that the high salaries are unwarranted because many SOEs operate as monopolies or near-monopolies.

An executive of an energy industry SOE said the head of a central enterprise in his field could make one million yuan (HK$1.26 million) a year. Those working for banking and finance central enterprises could earn more.

Jiang Jianqing, the chairman of the Industrial and Commercial Bank of China, was paid nearly two million yuan in 2013. In comparison, the annual salary of some ministry-level party cadres is about 200,000 yuan. Yet some top executives point to their counterparts in the West and complain their incomes are too low.

Former premier Wen Jiabao pledged in 2002 when he took office that he would push for reform and cap the salary levels of top SOE executives to "no more than 12 times that of an average staffer" in the same company. In 2009, Wen made the promise again but changed the cap to "no more than 30 times". By the time he stepped down in 2012, no reform had been carried out.

Professor Li Shi, executive dean of the China Institute for Income Distribution at Beijing Normal University, said talk about such reform was "always there" but resistance had been too strong in the past.

"Now Xi has specifically brought this up again … Resistance will always be tough, but Xi has built up his authority from the anti-graft campaign. If he insists on it this time, I think this reform [plan] will succeed," Li said.


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