SOEs' reform will help govt focus on innovation, tech-driven growth, experts say

As China prepares to soon unveil a three-year action plan for its State-owned enterprises' reform to further focus on mixed-ownership reform and reorganization, industry experts said the move will aid the government's efforts to steer the economy toward innovation and technology-driven high-quality growth.

Their comments came after the State-owned Assets Supervision and Administration Commission of the State Council announced earlier this month that it is working on the plan.

Lin Wei, partner of Global Strategy Group at KPMG China, said because China aims to build a group of world-class, role-model SOEs that lead in high-quality development, it would be economically beneficial for more SOEs to take part in the mixed-ownership reform to bring private capital into the SOEs.

It is urgent for SOEs to take a strategic and portfolio view of all the business units within their groups to identify strategic option to create shareholder value, because it will help them divest and exit non-core and non-performing business and enable them to enter high growth areas by taking a hard look at their own competitive advantages and channel more resources and support the more promising market segments, he said.

"The reform will not only create more commercial vitalities and expand SOEs' sale channels abroad, but also introduce market-oriented remuneration system to better reward outstanding performance and incentivize innovation," Lin said, adding the involved parties should also consider, among other components, ownership structure, digital and technology adoption, and how to create shareholder value.

He expects the planning process of the 14th Five-Year Plan period (2021-2025) currently undergoing to offer a great opportunity for SOEs to think strategically and proactively about how to steer their own transformation and build those key initiatives into their plans.

The COVID-19 pandemic, geopolitical uncertainties and trade tensions will undoubtedly introduce many new complexities and considerations, however, these should not be the reasons to slow down reforms, on the contrary, they should paint an even strong sense of urgency for reform, he added.

"SOE's operating in industries facing output overcapacity, strong competition from the private sector players have a strong need to enter overseas markets, and those whose customer behaviors are being reshaped by digital and technology have greater urgency to accelerate market-oriented reforms," said Lin. "Specifically, SOEs in the consumer and retail, general industrial, healthcare, and transportation and logistics sectors should move with a greater sense of urgency."

The SOE reform in the second half will be accelerated to catch up with the schedule falling behind in the first quarter, which was affected by the COVID-19, said Li Jin, chief researcher at the China Enterprise Research Institute, in Beijing.

Under the government guideline, he said the mixed-ownership reform will be expanded and strategic restructuring will be strengthened in sectors including coal and electricity, steel and non-ferrous metal.