State capital management reform plan to enhance SOEs' capabilities

Moves by the authorities to empower State-owned enterprises will further cut executive interference in SOEs and effectively prevent the loss of State assets due to outdated modes of management, a senior regulatory official said on April 29.

Weng Jieming, vice chairman of the State-owned Assets Supervision and Administration Commission, made the remarks after the State Council issued a plan on the reform of State-owned capital management, pledging to classify authorization and decentralization, improve capital operation capabilities and optimize management teams' performance.

According to the plan released on April 28, SOEs will be granted more autonomy to run their businesses, the boundaries of power and responsibilities between representatives of State capital and SOEs will be clarified, and the power of SOEs' board of directors should be ensured.

Weng said representatives of State capital will come from the SASAC, the Ministry of Finance, and other government branches and institutions, authorized by the State Council.

According to the plan, a list of State capital representatives' oversight powers and responsibilities should be made, affairs outside which will be decided by SOEs. State capital representatives' ideas will be embodied through directors, who are appointed according to the equity that State capital holds.

Representatives should offer different authorization to different kinds of SOEs, including State-owned capital investment or operation companies, commercial companies, and public-interest-oriented companies, he said.

Experts said the authorization will be offered to State-owned capital investment or operation companies on strategy planning, management of core business, human resources, equity incentives, wages and management of major financial issues.

As China aims to build a group of world-class, role-model SOEs that lead in high quality development, this move will boost the government's ability to further shift its role from managing SOEs to managing their assets and serving the real economy, said Li Jin, chief researcher at the China Enterprise Research Institute in Beijing.

"Regulators previously paid more attention to the scale of SOEs' revenue," he said.

"In the next stage, more attention will be placed on SOEs' return in areas such as profit, stock market performance, investment on research and development, and added value, therefore they will not only be leaders in terms of revenue scale, but stand out for development quality and efficiency."

With these new change, some State assets have already undergone appraisal and pricing, and have more prerequisites for open trading, said Gao Minghua, director of the Research Center for Corporate Governance and Enterprise Development at Beijing Normal University.

Gao added that many SOEs will restructure to reallocate State-owned investments, while becoming State capital investment companies and State capital operation companies.

The number of SOEs in these two categories has reached 21 in centrally-administered SOEs, or central SOEs in the nation, including China National Building Material Group Co and China Resources (Holdings) Co. Nineteen of them are investment companies.

The SASAC said in mid-April that it was making plans for a new batch of 11 central SOEs to join the group soon.

However, as China's SOEs are involved in a wide range of industries, and are in both competitive business and public service sectors, the authorization for them cannot be divided across the board and must be classified, said Zhou Lisha, a researcher at SASAC's research institute.