as growth slides china launches reforms to overhaul state owned firms 1294122015

The country’s huge state enterprises are to be restructured, even partly privatised

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By :  ,  Financial Analyst

On Sunday, China’s cabinet and the Central Committee of its Communist Party jointly issued plans to restructure the country’s state-owned enterprises (SOEs) including, if necessary, their partial privatisation.

The move comes amidst fresh evidence of slackening growth in China, the world’s second largest economy. Weekend data showed that industrial production grew in August at 6.1 per cent, missing analysts’ projections of 6.6 per cent, and steel production contracted 3.5 per cent on a year-on-year basis. Fixed asset investment grew 10.9 per cent during the eight months ended August, while economists expected 11.2 per cent.

Earlier, in foreign trade data, China had revealed sharp declines in both its exports and imports.

According to the official Xinhua news agency, the plans envisage a clean-up as well as integration of the SOEs, and may introduce the concept of mixed ownership by welcoming private capital investments. “Decisive results” could be expected as early as 2020, Xinhua said.

The government’s Assets Supervision and Administration Commission, or SASAC, centrally manages 111 SOEs, while local governments own and run about 25,000 companies. In aggregate, the SOE sector is estimated to employ roughly 7.5 million workers, and has been crying out for reforms to weed out corruption and inefficiencies, as well as the introduction of modern management practices instead of suffocating central political control.

SOEs will be allowed to invite private investors to “diversify ownership,” as well as restructure so as to be able to list on stock exchanges, Reuters said. Private investment would be permitted in companies that are categorised as “commercial,” as separate from “public, welfare-related” companies. Oil and gas, electricity, railways and telecommunications were sectors that could find a place in the former category.

Though full-scale privatisation was not being considered, Xinhua said the reforms aimed to “cultivate a large number of state-owned backbone enterprises with innovation capability and international competitiveness.”

The reforms will attempt to stamp out the corruption in these enterprises, but at the same time will introduce market-oriented compensation systems that will link pay with company performance. 

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