China: News Guidelines for Market-oriented & Mixed-ownership Reforms

China: News Guidelines for Market-oriented & Mixed-ownership Reforms

China: News Guidelines for Market-oriented & Mixed-ownership Reforms

Mixed-ownership reform is expected to help China make breakthroughs in SOE (state-owned enterprise) reform, despite some current challenges.

The state-owned China National Petroleum Corp. (CH:CNPZ) announced Wednesday it has passed guidelines to promote market-oriented and mixed-ownership reforms.

China said it will take substantial steps in mixed-ownership reform in the electricity, oil, natural gas, railway, civil aviation,telecommunications and military industries.

“Piloting mixed-ownership reform in heavyweight industries indicates China’s resolve and confidence to push forward SOE reforms,” said Liu He, deputy head of the National Development and Reform Commission, China’s top economic planning body.

Mixed-ownership reform through diversifying the shareholding structure of SOEs is a pioneer for overall SOE reform, according to a statement issued last Friday following the Central Economic Work Conference.

Pilot reforms for state-owned asset investment companies, designed to make the state a stakeholder rather than a manager, would raise management and operational efficiency, according to the statement.

The prime aim of mixed-ownership reform is to create a flexible and efficient market-oriented mechanism to improve management of SOEs, according to China Enterprise Research Institute researcher Li Jin.

Methods to introduce SOE mixed-ownership reform include non-state-owned capital investment, SOE investment in private companies and employee stock ownership plans.

Progress has been made in this respect: 68% of all SOE-funded firms in Y 2016 were mixed-ownership, in contrast with 66% registered in Y 2014.

Results of the SOE reform are also emerging. Combined SOE profits returned to growth in October after dropping since the beginning of the year, the Ministry of Finance said. In the 1st 10 months, SOEs made a combined profit of RMB Yuan 1.92-T (US$276-B).

China has about 150,000 SOEs, which hold more than RMB Yuan 100-M in assets and employ over 30-M people.

Although significant in stabilizing GDP growth and employment, the blind expansion of SOEs despite the cooling market in recent years has compounded nationwide overcapacity and risk from corporate debts.

Though plagued by a slowdown, China is pushing for mergers and acquisitions (M&As) of its larger SOEs to enhance efficiency. A RMB Yuan 350-B national fund was established 3 months ago to speed up the process.

From power supply to tourism, consolidation in a number of sectors has accelerated at an unprecedented pace this year. Food giant Sinograin was approved to acquire China National Cotton Reserves Corporation last month, and 2 building material producers initiated their merger in August.

Ongoing large-scale restructuring is just part of an ambitious program to push government-funded businesses to the market.

Guidelines on SOE reform were issued in September last year, promising mixed-ownership pilots, opening up more industries to private capital, and a modern enterprise system.

By Hou Qiang

Paul Ebeling, Editor

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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