Is Beijing getting serious about selling off state firms?

Beijing is again trying to reinvigorate its reform of state-run firms by selling off stakes to investors, and all eyes are on telecoms operator China Unicom.

Alibaba Group and Tencent Holdings are expected to lead the way to invest US$10 billion in the telecoms firm, Reuters reported. It is one of three state-owned telecoms operators.

China Unicom said in a statement it was talking to potential investors but declined to name any. Alibaba is the owner of the South China Morning Post.

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There could be a breakthrough in ownership of China Unicom in the coming weeks which would set an example for other state businesses to follow, according to Li Jin, chief researcher with the China Enterprise Research Institute, a government-backed think tank in Beijing.

Li said Beijing was in need of a case like China Unicom “to deliver a satisfying answer to the [19th] Party Congress”, referring to the key leadership reshuffle in autumn.

After more than three decades of trials and experimenting, Beijing is still looking for the best way to turn state-run firms into modern, profitable and efficient businesses that will at the same time stay loyal to the ruling Communist Party.

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The latest strategy to revitalise the state sector, which involves a total of 139 trillion yuan (US$20.57 trillion) of assets, is a “mixed ownership” plan adopted in 2012, with minority stakes being sold to private or even foreign investors.

But Chinese President Xi Jinping has at the same time called for the party to strengthen its control over state firms, ruling out full privatisation.

That has slowed down the state sector reform, exacerbated by a lack of operational details for the mixed ownership model, according to Li.

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Xie Yanmei, a researcher with Gavekal Dragonomics, said results of the reform so far had been underwhelming, and many of the plans announced by state-backed listed companies were “no more than empty promises”.

The group leading the reform, headed by Xi, concluded at a meeting on July 19 that “mistakes” would be tolerated during the process.

Meanwhile, at the National Financial Work Conference earlier this month, a key meeting of policymakers which focused on tackling risk, the conclusion was that China must reduce debts incurred by state-run enterprises. And at a Politburo meeting on Monday, leaders pledged to make closing down “zombie companies” a priority.

The official China Securities Journal reported on Monday that 62 state-controlled listed firms had suspended trading as of July 21 because they were in the process of ownership change.

“But the ideological and political bottom lines ... are difficult to budge,” Xie said. “The result is likely to be more restructuring dictated by the government rather than market-driven reform.”