China to corporatize central SOEs by end of 2017

CGTN photo

China's State Council has recently issued an "implementation plan for China's corporatization reform of the central government-administered state-owned enterprises (SOEs)", requiring all central SOEs to complete corporatization reforms within the year.

This move is the latest sign of China's efforts of instituting broader reforms among state enterprises to boost efficiency and profitability.

Currently, the ownership structure and managerial arrangement in some state-owned enterprises do not follow the logic of governance in a modern firm. Theoretically, the owner of a state-owned enterprise is the State, or the people as a whole.

In practice, state ownership rights in a state-owned enterprise are exercised by administrative departments of different levels of government, such as central SOEs, which are administered by the State-owned Assets Supervision and Administration Commission (SASAC).

The central government currently owns and administers 101 enterprises in sectors ranging from nuclear technology to medicine.

All central SOEs reported combined profits of 722 billion yuan (106 billion US dollars) in the first half of this year, up 15.8 percent year on year, and held a total of 12.5 trillion yuan in revenues for the first six months, according to SASAC.

In 2015, China’s State Council said the setup of corporate structures at SOEs would be completed by 2020.

About 90 percent of China's state-owned firms have already completed such restructuring, which helped improve their governance structures and management, but some enterprises owned by the central government have yet to complete restructuring at group levels, the State Council said.

Efforts will be made to strengthen the leadership of the Communist Party of China at the big state firms and prevent the loss of state assets during the restructuring, the State Council noted.

In the recent National Financial Work Conference, the central government required that SOEs give priority to deleveraging and speed up the phase-out of debt-laden "zombie enterprises".

China's non-financial SOEs have a high rate of leverage. Data from the Chinese Academy of Social Sciences showed that the leverage ratios of financial institutions and non-financial institutions were 21 percent and 156 percent respectively as of the end of 2015, the Economic Information Daily reported.

To revamp the country's debt-ridden state sector, China has also pledged to push mixed ownership reforms to allow private capital to invest in firms run directly by the central government.