China state enterprise reform seen as 'realistic' in current climate

Although a number of market observers criticised China’s latest state sector reform plan for not weakening the state’s role and improve the sector’s efficiency, some analysts seem to disagree.

Instead they say the programme, which reflects China’s current economic ideology, may improve productivity of most state firms and bring them investment opportunities in some key sectors.

China’s recently-announced reform plan on state-owned enterprises (SOEs) has disappointed a number of market watchers, some of whom feel the plan may further strengthen the monopoly of state firms instead of making their sectors more market-oriented.

In a research note issued earlier this week, UBS Securities said most reviews remained negative as the plan didn’t fully meet market expectations for a large-scale introduction of private investment into SOEs and a reduction of influence by the Chinese Communist Party on corporate operations and decision-making.

However, investors may not understand the limits and pressure that China’s decision-makers are facing in the current political and ideological climate, UBS said in a report.

“The decision-makers need to seek a balance among many interest groups,” Wang Tao and Harrison Hu, China economists for UBS, said in a translation of their Chinese language report.

Despite guidelines which emphasise making state firms bigger and stronger, it also calls for the improvement of efficiency and investment return of SOEs, UBS said.