China's SOE reforms promising, says pundits

BEIJING - The China Securities Journal on Tuesday gave a glowing review to China's newly announced state-owned enterprise (SOE) reforms, with experts reinforcing how the measures eye reorganization and the involvement of more private capital.

The decision published on Friday by the Central Committee of the Communist Party of China (CPC) urged improved management of state-owned assets, and said that qualified SOEs will be reorganized to establish state-owned assets investment companies.

The China Securities Journal enthused particularly about the latter work, which is currently under research by the State-owned Assets Supervision and Administration Commission (SASAC).

Li Jin, chief researcher with the China Enterprise Research Institute, told the journal that this is a great step to shift the emphasis of management from enterprises to capital.

According to the report, Chinese SOEs among the Fortune Global 500 are likely to be the first to be reorganized as state-owned assets investment companies. The list includes oil giants Sinopec, CNPC and CNOOC, telecom operators China Telecom and China Unicom, and the State Grid.

It also said that the SASAC will promote incentive mechanisms in SOEs with mixed equity structures and high degrees of marketization.

A 2008 SASAC regulation capped incentives at 40 percent of remuneration for SOEs listed in Shanghai, Shenzhen and Hong Kong, and 50 percent for so-called red-chips which are overseas incorporated.

Analysts forecasted the caps will be lifted significantly.

The CPC Central Committee also decided to support the development of the private economy.

Its decision also mentioned cross shareholding of state capital, collectively owned capital and non-public capital, and that employees of multi-ownership enterprises will be able to hold shares in their companies.

Li Jin said the new round of SOE reform will generate more opportunities in the next "gold decade" for private capital.

The journal's report said that deepening reforms will have to grapple with monopoly issues, which would leave new investment and development chances for private capital. The SASAC is now considering attracting the private sector into the construction of certain infrastructure projects.

Li predicted that future reforms will trigger different classifications of SOEs, in order to realize more rational resource allocation.

Hong Yinxing, a Nanjing University professor, told Xinhua that SOEs' monopoly impaired the vitality of the private economy as well as market impetus.

China's non-public sector has struggled in an unfair business environment with barriers for access and financing, which has weakened the overall efficiency of the world's second-largest economy, Hong said.

He called for SOE reforms to give full play to the effect of fair competition and guarantee equal treatment for public and non-public sectors when acquiring resources and accessing the market.

Meanwhile, the CPC Central Committee's decision ruled that some state-owned capital will be transferred to social security funds. Thirty percent of the gains of the country's state-owned capital will have to be handed back to the government by 2020.

At present, the proportion ranges from zero to 15 percent. The money will be used to improve people's livelihood, said the committee.

Jiang Yong, an expert on economic security, said the measure should be promoted since more returned SOE gains will benefit the country's people, better suiting the enterprises' state-owned role.

"This announcement paves the way for further separating ownership and operation of SOEs," Li forecasted. "Next year will witness stronger and faster SOE reform."