Competition and independence are key to SOE reform

The Third Plenary Session of the 18th Communist Party of China Central Committee, due to run from Nov 9 to 12, should make some breakthroughs in the reform of State-owned enterprises, says an article in the 21st Century Business Herald (excerpt below):

In the past 10 years, the reform of State-owned enterprises has basically remained stagnant, partly because the Chinese economy has been in a period of rapid expansion, which has brought huge benefits to the SOEs and encouraged their growth. Their political situation has also improved since the global crisis.

But the efficiency of many SOEs is very poor and their operating costs are very high. Many do not pass on their profits to the government. They also obstruct the development of the private sector in various fields because of the monopolies they enjoy.

The main targets of SOE reform are to separate government functions from the functions of the SOEs, while separating the administration of State-owned assets from the management of SOEs. Recent developments mean these targets are increasingly easier said than done.

The Third Plenum must clarify which industries should be dominated by SOEs and which SOE fields should be opened to market competition.

The State Council recently vowed to accelerate reforms in the fields of finance, oil, telecommunications and resources, while increasing the stake of private capital in these industries, a fact that sends out a clear signal on the direction of SOE reform.

The government should also reduce its intervention in the daily operations of SOEs and grant them more independence and autonomy.