Xi Jinping must use his power and iron will to reform mainland China’s bloated state-owned enterprises

Downsizing the sector is a matter of urgency, yet vested interests and local authorities stand in the way

PUBLISHED : Wednesday, 25 May, 2016, 10:48pm
UPDATED : Wednesday, 25 May, 2016, 10:48pm

The mainland’s bloated and lumbering state-owned enterprises present a prime target for a slimming exercise. The fact that there has been no serious attempt to set benchmarks for improving their efficiency and their abysmal return on public assets shows that the problem is political rather than economic. Now that President Xi Jinping (習近平) has called on government agencies to accelerate “supply-side structural reforms”, amid official questioning of the sustainability of debt-fuelled growth, it will be interesting to see whether Beijing’s adoption of hard targets for downsizing the sector makes any difference.

Fitter, leaner, faster: China sets hard targets in ‘weight loss’ plan for bloated state firms

They include cutting coal and steel capacity by 10 per cent this year and next, slashing offshoots of the biggest SOEs by 20 per cent, cutting costs and boosting profitability by a combined 100 billion yuan (HK$119 billion) over the next two years, and shaking up management by compressing nine levels of reporting to three or four. Announcing the decisions after a meeting chaired by Premier Li Keqiang

(李克強 ), the State Council said some of the problem SOEs had were “weak core businesses, redundant workers, inefficiencies, excessive layers of management and too many subsidiaries”.

This is a significant development. Beijing has been talking about SOE reform for a long time, with the leadership making a lot of comment and promises but not setting concrete targets until now. However, reform of SOEs remains one area where a lot of resistance can be expected. Xi has acknowledged the difficulty of pushing through economic reforms that affect entrenched interests, and the SOEs are one of the major examples. Hopefully, the State Council decisions put pressure on government officials to carry through implementation, and on SOEs to reform themselves before someone else finally does it for them.

‘Don’t wait, waver, hide or hesitate’: Xi Jinping on ‘supply-side’ reform

That said, the devil is in the detail. When officials talk about slashing capacity by 10 per cent it depends on how it is calculated. At the local level authorities anxious to maintain growth can be expected to be resourceful in coming up with ways to mitigate the impact.

In a country and economy of such size and diversity, top-to-bottom structural reform is never going to be easy. Success rests with Xi – not just because he is chairman of the central government’s leading group on the economy but because he is acknowledged as the most powerful leader since Deng Xiaoping (鄧小平 ), and reforming the SOEs is ultimately a political exercise requiring an iron will to overcome resistance.