SCIO briefing on half-year central SOE performance

Economy
SCIO holds a press conference on half-year central SOE performance at 3 PM on July 11.

China SCIOUpdated: July 12, 2017
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Xi Yanchun:

Thank you for your introduction, Ms. Shen Ying. Now, we move on to the question session. As always, please identify your media outlet before raising questions.

CCTV:

We have noticed that the performance of SOEs has improved greatly in the last half of year, and the monthly profit even set a new historic record. Can you please explain what elements prompted the SOEs' big growth?

Shen Ying:

Thank you for your question. The SOEs have indeed maintained a stable and positive development trend. Their layout has been optimized through deep reform, their development dynamic has grown due to innovation, while the quality and benefits have improved through transformation and upgrading. Thus, the monthly benefit was able to reach an historic high. At the same time, we analyzed the benefits and profits structure, and felt that the growth of benefit was seeing clear improvement in terms of cooperation and stability, which was mainly reflected in the following areas. First, the main profit centers made a greater contribution. A SOE usually has various sources of profit, but the main profit is the core and represents stability. In the past half year, the main profit of the SOEs increased by 4.8 percent as a component in overall profitability. Second, we feel there has been a boost in synergy due to the improved dynamic from traditional industries as well as new areas of dynamism. The traditional petroleum and petrochemical, steel and coal industries have achieved a large rebound in terms of their benefits, which helped lay the foundations for benefit growth; meanwhile some equipment and advanced manufacturing industries, as well as elements of the modern service industry, all continued to achieve better growth. Third, the scale and benefit both saw significant growth. In the half year, the scale increase rate reached 16.8 percent, the year-on-year profit growth rate was 15.8 percent. We like to stress that the development quality of an enterprise doesn't just rely on expansion. If you expand in scale, but the benefit doesn't grow at the same time, it shows operational efficiency is limited. From current indicators, the matching rate is quite good in historical terms.

Meanwhile, the growth rates of profit, net profit, and profit solely accruing to the parent company have also basically kept pace. Profits grew by 15.8 percent, net profit 18.6 percent, while the profit accruing to the parent company grew 14.7 percent. The three figures indicate the foundations have been laid for enhanced growth for various subsidiary companies inside corporate groups.

There's another thing worth noting: the benefit growth should mostly be attributed to the release of potential production capacity. Through reform, readjustment, transformation and upgrading, certain dynamics and potentials were released, sustaining benefit growth, if you look at the sources of benefit increase for the past half year.

If you want to know why, we have concluded there are three reasons. First, China's macro-economic situation is becoming better, while maintaining stability. As you know, in the past half year, the macro-economic situation was very positive and stable; in particular, the PMI has now stayed above the threshold for 11 straight months. This indicates that the market situation is becoming better. The macro-indexes, including economic growth, employment, price of commodities, international balance of payments, etc., were all better than expected. China has adopted precise and efficient macro-control measures since the beginning of the year, including fiscal and monetary policies, that have greatly sustained the real economy. This is particularly true in regard to the reforms for streamlining administration, delegating more powers to lower-level governments and society, improving regulation and optimizing services. This created a good environment for business and cut the fees and pressures on them, creating good circumstances for the real economy's further development. Besides, the implementation of China's big strategies, including the integration of Beijing, Tianjin and Hebei Province, the Yangtze River Economic Zone, as well as the Belt and Road Initiative, provide great space for enterprise development. The macro-situation has laid a good foundation for SOEs to achieve rapid growth in revenues and profits.

Secondly, the better performance is also a result of central SOEs deepening the supply-side reform. These enterprises expanded economic benefits in the first half of this year after having well implemented the strategies charted by the Central Committee of CPC and the State Council, especially the supply-side reform, which have improved their structure, transformed and upgraded them, and fostered new growth drivers. We're increasingly aware that the supply-side reform is an essential therapy applied to unravel the structural conundrums of economic development while sustaining long-term growth.

We are determined to advance the supply-side reform of central SOEs and cut overcapacity in iron and steel as well as coal by addressing the problem of zombie enterprises first so as to balance supply and demand from a macro-economic viewpoint. All the above are designed to ensure stringent actions based on strong resolution. At the same time, we have encouraged the central SOEs to reorganize and different industries to cooperate to achieve synergy.

Thirdly, the achievements can also be attributed to the central SOEs' relentless efforts to improve themselves and expand economic benefits. Since last year, SASAC has led a program for the central SOEs involved to improve themselves and expand economic benefits, requiring them to pay high attention to stabilizing growth so as to support the national economy. The central SOEs have acted as required, exploring new markets, cutting costs, increasing economic benefits and pursuing industrial coordination in a bid to stabilize growth.

That is why they were able to secure a good performance in the first half this year.

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