China approves plan to boost prominence of state firms, despite complaints from trade partners
- China has rolled out a three-year plan to boost the standing of state firms, despite complaints from trade partners these companies have unfair advantages
- Analysts say the initiative is unlikely to significantly improve efficiency among the China’s 130,000 state-owned companies
The SOE action plan for 2020-22 was endorsed by the Central Comprehensively Deepening Reforms Commission, an agency headed by Xi, late last month.
The standing of China’s SOEs has been elevated during the coronavirus outbreak due to their reliability helping contain the virus, providing emergency supplies and ensuring smooth operation of utilities.
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The meeting chaired by Xi on June 30 concluded that “the next three years will be a critical period for China’s SOE reform, and we must enhance the party’s comprehensive leadership over SOEs … and stick to the concept of a socialist market economy,” reported the official Xinhua news agency last week.
“State-owned enterprises are an important material and political foundation for socialism with Chinese characteristics. They are the key pillar and force for the party’s rule and the country’s revitalisation,” the Xinhua report said, citing the commission’s statement.
“We will improve their economic competitiveness, innovation capabilities, their ability to control the economy, their influence as well as their capability for control of and resistance to risks.”
China’s State-owned Asset Supervision and Administration Commission (SASAC) said last month state firms were on the frontline of the country’s “whole-nation innovation mechanism” to confront the intensifying technological rivalry with the US.
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“Central government-owned enterprises should target a commanding height in technology innovation,” said Du Guogong, deputy party secretary of the research centre at SASAC.
“They should focus on the nation’s strategic needs … and try to overcome technological bottlenecks.”
Local governments are trying to lure private capital and even foreign funds into some of its state firms through “mixed ownership reform”, but it is unclear if partial privatisation would improve efficiency.
Houze Song, a research fellow at the Paulson Institute in Chicago, said Xi’s latest plan is unlikely to “contain any silver bullet that will make SOEs more efficient”.
Beijing has still not figured out an effective way to turn around state firms and there was “little evidence” that mixed ownership has helped, Song said.
Liang Zhongtang, a researcher with the Shanghai Academy of Social Sciences, said the real reform of state enterprises should be market-oriented, as was outlined in the government's 2013 reform blueprint. But the pace has now been slowed by the coronavirus pandemic and the trade war with the US, he added.
China has about 130,000 state firms at central and local government levels, the most important of which are the 97 industrial conglomerates that report directly to SASAC, including China National Petroleum Corp, State Grid and China Mobile.
Chinese SOEs, excluding state-owned banks and other financial institutions, had combined assets of 210 trillion yuan (US$29.9 trillion) at the end of 2018, of which 80 trillion yuan was controlled by the central government and the rest by local authorities, official data showed.
State-owned enterprises often have easier access to licenses, bank credit and land than private or foreign businesses, which is a source of concern for China’s trade partners.
Some Chinese officials, including China’s central bank governor Yi Gang, have argued there should be “competition neutrality” – or a level playing field – between state and private businesses.
At the same time, the Communist Party's iron grip over SOEs is not up for debate. Party cells within the firms must vet important business decisions and key personal appointments, according to a new regulation published by the Politburo in January 2020.
Previous attempts to reform the sector have failed to make long-term improvements in efficiency.
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In 1998, former Chinese premier Zhu Rongji laid out a three-year plan to revitalise the state sector. Millions of workers were sacked and local state-owned businesses were sold to private investors in a process known as “grabbing the big and letting go the small”.
China has also floated shares in state assets in Shanghai and Hong Kong with help from Wall Street investment banks, selling small ownership stakes to retail investors.
Li Jin, chief researcher with the China Enterprise Research Institute, said pilot programmes, including preference stock schemes, employment shareholding schemes and new state capital investment and operation platforms, could be rolled out as part of the new three-year plan.
