High-quality growth sought in reform of central SOEs

China's plans to establish new business groups and build an industrial ecosystem among its centrally administered State-owned enterprises will foster high-quality growth and diversify approaches to cooperation, analysts said on Tuesday.

Focusing on areas including industrial competitiveness, national economy, public services and people's livelihoods, the government will increase investment to set up new SOEs to better serve China's strategic goals in the next stage, said Weng Jieming, vice-chairman of the State-owned Assets Supervision and Administration Commission of the State Council.

Apart from expediting the liquidation of assets with limited growth potential and low operational efficiency, the government will support central SOEs to conduct in-depth integration of similar or homogeneous businesses to avoid unhealthy competition, as well as create competitive advantages to build a strong industrial chain, Weng said at a business-themed event held in Beijing on Monday.

The official said that the government will encourage central SOEs to conduct strategic cooperation in various ways, such as building an industrial ecosystem and cloud platforms so as to help them jointly develop new markets, technologies and products.

During the event, locally administered SOEs and central SOEs — including China Rare Earth Group Co Ltd, Aviation Industry Corp of China Ltd and COFCO Corp — sealed 11 professional integration deals in areas such as power supply, high-end manufacturing and natural resources.

Driven by its growth demand, China has quickened the pace of conducting professional integration among its SOEs, said Liu Xingguo, a researcher at the China Enterprise Confederation in Beijing.

As all the tasks of the government's three-year (2020-22) action plan for SOEs will be concluded by the end of this year, accelerating the pace of optimization and structural adjustment of State-owned assets will bolster the real economy, keep production and supply chains stable and strengthen weak links in the economy, Liu said.

The three-year action plan is designed by the Chinese government to push SOEs to adapt themselves to market-oriented and law-based rules and norms in the new era as soon as possible, and assume greater responsibility in an open and innovative environment.

"It can be fairly effective to draw support from State-owned capital investment, structural adjustment funds and innovation funds as practical measures to facilitate these moves," he said.

Boosted by mixed-ownership reform, progress in central SOEs' strategic restructuring and surging innovation activities, China's central SOEs completed over 95 percent of the measures outlined in the three-year plan by the end of June.

In addition to attracting 380 billion yuan ($52.14 billion) in private capital last year, major restructuring was completed in some leading central SOEs in sectors from steel to technology. Several industrial groups were established in the sectors of space, logistics and resources, including China Satellite Network Group Co Ltd and China Electric Equipment Group Co Ltd.

Central SOEs saw combined sales revenues grow 10.9 percent year-on-year to 29 trillion yuan in the first nine months, while their combined profits surged 11.4 percent on a yearly basis to 2.1 trillion yuan, SASAC said.

In the meantime, research and development investment by central SOEs jumped 17.5 percent from the same period last year.

Strategic mergers and acquisitions, reform measures like an emphasis on innovation, and the establishment of market-oriented operational and management mechanisms have enhanced central SOEs' earning strength this year, said Zhou Lisha, a researcher with the Institute for State-owned Enterprises at Tsinghua University.

Zhou said that central SOE's growing investment in "new infrastructure"-related projects will accelerate the integration and application of innovative technologies with the real economy, and support the digital transformation of small and medium-sized businesses in the years ahead.

Unlike traditional infrastructures such as railways, roads and water conservancy, the concept of new infrastructure refers to critical facilities based on information technologies like 5G, AI, the industrial internet and the internet of things.