Chinese government sets timetable for reform of centrally-administered SOEs

BEIJING -- Closing down "zombie companies," properly helping the affected workers and trimming sideline businesses that impair the core competence of the centrally-administered state-owned enterprises (SOEs) are among the measures the government will introduce in the coming two to three years to deepen the reform of these important SOEs.

The decision was unveiled during an executive meeting of the State Council chaired by Premier Li Keqiang on Wednesday.

"Centrally-administered SOEs have played an indispensable role in China's social and economic development, and we should give them full credit in that regard," Li said. "Yet crucial problems exist with them, too. Now we must tackle them step by step, which is essentially deepening the SOE reform."

Most of the 106 centrally-administered SOEs in China operate in sectors that are crucial to the country's social and economic development, such as telecommunication and energy.

Major problems with the bloated centrally-administered SOEs include weakness in core business, too many sideline businesses, low efficiency and excessive layers of administration and management.

The excessive layers of hierarchy and redundance persisting in the centrally-administered SOEs are also part of the reasons why it has not been easy to push through the reform over the years.

Despite the difficulties, Li has reiterated on many occasions that the government resolves to carry out such reform, describing the determination as that of "a brave warrior cutting off his own hand to save his body," given that the reform will affect the interests of some people.

The Wednesday meeting decided that 345 "zombie companies," which are all subsidiaries of the 106 centrally-administered SOEs, will be reorganized or left to the market within three years.

Centrally-administered SOEs are required to reduce their management levels to less than three or four from the current five to nine, while cutting 20 percent of their subsidiary legal entities within three years.

The government also aims to reduce losses made by centrally-administered SOE's subsidiaries by 30 percent, and increase the profit of centrally-administered SOEs by more than 100 billion yuan ($15.3 billion) by the end of 2017.

Meanwhile, the government will cut the country's coal and steel capacity owned by centrally-administered SOEs by 10 percent this year, followed by another 10 percent in 2017. Coal, iron and steel are among the key sectors targeted in the effort to reduce excess capacity.

During the Wednesday meeting, Li again stressed that the centrally-administered SOEs need to "lose weight and get fit," an idea the Chinese premier brought forward in this year's government work report.

The reform of SOEs in general is a major task set by the government in this year's government work report, delivered in March by the premier. It pointed out that the government will push hard to ensure success in upgrading SOEs, pledging that structural adjustment will be made so that they will be developed through innovation, reorganization and reform in SOE personnel management.

"Fostering greater craftsmanship is of vital importance for centrally-administered SOEs. They should concentrate on their core business so as to improve product quality. This should be the core competence of the SOEs," Li said during the Wednesday meeting, adding that they should not allocate too many resources to their sideline businesses where the private sectors usually have a strength.

The new plan encourages internal restructuring for centrally-administered SOEs and optimizing of their resource allocation. Social capital are encouraged to participate in and support the restructuring of the centrally-administered SOEs.

The new plan also calls on the centrally-administered SOEs to "grow stronger through innovation" and invest more in research and development.