Singapore's Temasek to be 'model' for SOE reform

China will learn from Singapore's Temasek Holdings Pte Ltd, using the government investment corporation as a model for the reform of asset management, sources at the State-owned Assets Supervision and Administration Commission told the China Securities Journal.

Starting this year, SASAC will establish three types of State-owned asset management entities: industrial investment corporations, investment holding companies and asset operating companies.

"Some local governments are also proposing to set up State-owned asset operating companies and industrial investment companies," the anonymous sources said.

Many State-owned enterprises on the Chinese mainland are interested in becoming industrial investment companies. SASAC is drawing up the conditions as to industrial sectors, management and scale to select qualified SOEs.

The new investment companies may be formed through the transformation of one SOE or the reorganization of several SOEs.

China Resources (Holdings) Co Ltd, State Development and Investment Corp and China POLY Group Corp are the three likeliest enterprises to become investment holding companies under the pilot reform.

There's no plan to try out State-owned asset operating companies soon, although the nation may set up new "capital operating firms" whose shareholding rights will mainly come from the 40-plus listed SOEs, according to the newspaper.

The investment companies will be in charge of investment, financing and construction, while "capital operating firms" will mainly manage the SOEs' stock rights and not run industries directly.

The investment and operating models are similar to those of Temasek, which manages a net portfolio of $173 billion, mainly in Asia.

Mainland version

Analysts said that a mainland version of Temasek is gradually taking shape with the implementation of the reform plans.

"There are many models of sovereign wealth fund management in the world. Singapore's Temasek has proven to be a more reliable and efficient one than the others, and it fits China's needs better," said Chen Fengying, a economic researcher at the China Institutes of Contemporary International Relations in Beijing.

However, Chen added: "China's State-owned assets are much larger than those of Singapore. Although it is impossible to copy Temasek directly in China, the reform is meaningful for China to try new models of State-owned asset management. SASAC has proven to be lagging behind the needs of the times and the market."

SASAC and many local governments regard "establishing State-owned asset investment and operating corporations" as a priority under the reform plans of the Third Plenum of the Communist Party of China's 18th Central Committee.

"SASAC has no choice but to take bold steps to separate management from administration of State-owned assets, because of the pressing needs of China's market reform.

"Otherwise, SASAC can even be dismissed and replaced by any other capable departments," said Chen. "It will be a noteworthy and concrete, yet overdue, reform in the difficult SOE field under the new reform leadership team".

Liu Jipeng, who conducts research into economics and SOE reform at the China University of Political Science and Law, said: "State-owned asset supervision and administration costs will increase if the relations between the investment and capital operating corporations and SASAC cannot be balanced.

"In the process of interest and power redistribution among the former supervisor and newly established management companies of State-owned assets, SASAC must hold tightly to its duties as a regulator of State-owned asset security without interfering with the enterprises' operations," Liu noted.

SASAC will delegate its powers to the State-owned asset operating firms as well as individual SOEs, finishing by 2020.

The initial stage will last one or two years, and if the pilot reform is successful, the new model will be copied on a large scale, the anonymous SASAC insiders told the newspaper.