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Six key questions concerning SOE reform plan

Updated: Sep 17,2015 10:04 AM

The central government issued a guideline on reform of State-owned enterprises recently. What are the key features in the document? Xinhua reporters have interviewed officials from SOE management and experts to address public concerns.

Question 1: What are the key features and highlights in the plan?

Zhang Yi, chief official of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), said the plan was released recently after being approved by the State Council, the meeting of the Central Leading Group for Deepening Overall Reform and the Politburo meeting of the Central Committee of the Communist Party of China.

Li Jin, a research fellow in enterprise operation, said the plan has addressed concerns in the development of the SOEs in China with a series of reform measures. “The plan is in line with previous policies and also innovative in some aspects,” Li said.

Li said the plan boasts several key features. First, it stresses that the ownership of the SOEs belongs to all the people, and the SOE reform aims to protect and develop State capital.

Second, it stresses that the SOEs must become independent market entities and it proposed a series of measures to make them more market-oriented. It requires SOEs to unshackle institutional barriers to spur vitality.

Third, it aims to prevent the loss of State capital. It strengthens the supervisions of State capital and calls for transparency and accountability to prevent corruption.

Question 2: How do SOEs become truly independent market entities?

The plan requires SOE reform to follow the law of the market economy and corporate development.

Zhang Yi, head of the SASAC, pledged to turn the SOEs into independent market entities to release more vitality and improve competitiveness, which is the origin and aim of the reform.

Chu Xuping, head of research for the SASAC, said SOEs are enterprises, so they have to follow the law of the market economy and regulations concerning corporate development.

Chu said the word “market” appeared 35 times in the document and is a consistent thread throughout the reform plan.

The plan includes a series of reform measures. It aims to guarantee the property rights of the enterprise legal entity and its autonomy in management. It also requires introducing more diversified investors into SOEs.

Chu said these reform measures will encourage the pro-activeness and creativity of the management team and employees.

Question 3: How is the management of State capital supervised?

The Party has required the management of SOEs to focus on supervision over State capital, which proposed a new direction of SOE management.

The change to capital management, instead of managing the entity itself, requires at least two negative lists – one concerning government responsibility and the other concerning the scope of government supervision.

Zhang Chunxiao, a professor at the Academy of National Governance, said capital management requires the separation of the company’s operation rights from its ownership. “It has to make clear that what kind of rights the investors have,” he said.

One feasible approach is, through the M&A of the SOEs, to concentrate State capital in crucial sectors such as major infrastructure construction projects, or those related to State security and the nation’s economic development, said Li Jin, the expert on enterprise development.

Question 4: How do you prevent the loss of State capital and curb corruption?

State assets are hard won and are common wealth belonging to all the people. Zhang Yi, head of the SASAC, said the prevention of State capital loss is the premise of SOE reform. Without tougher prevention measures, the reform can hardly see any achievements.

Liu Junhai, a professor of economic law at Renmin University of China, said there used to be multiple supervisions for SOEs, and the internal management of the SOEs was substandard and lacked checks and balances.

The plan asked for strengthened internal supervision, especially over the departments where capital, resources and assets are concentrated. It also requires establishing an effective external supervision system to push for opening-up and transparency.

The plan made it clear that officials who are slack in investigating violations of discipline in the company will be held accountable.

Zhang Yi, head of the SASAC, called for an accountability system that will hold responsible officials for major policy mistakes, dereliction of duty and corruption.

Question 5: How can corporate vitality be encouraged?

The essence of SOE reform is to improve the vitality of the companies and the efficiency of State capital. In this regard, the plan has proposed a series of measures, including giving autonomy in management. In addition, it also includes steps to recruit professional managers into SOE management.

Li Jin, the expert on enterprise operation, said a mechanism allowing both income increases and decreases, promotions and punishments, could spur the vitality of employees.

In addition, he said, he believes that the professional operation of State capital and the introduction of non-governmental capital into the SOEs will be beneficial to an increase in State capital.

Question 6: How can SOE reform be of benefit to the general public?

The plan has clarified that the ownership of SOEs belongs to all the people, and they are a major force in pushing forward the modernization of national governance.

Zhang Chunxiao from the Academy of National Governance said the plan has stressed that the SOEs belong to all the people, in other words, its development is for the benefit of the people.

As a result, the plan has required increasing the proportion of revenue that the SOEs have to hand over to the central government to 30 percent by 2020, in a bid to ensure enough capital can be used to improve people’s lives.

Moreover, the plan also supported public supervision over the SOEs. Information about SOE operations has to be released in a timely manner, and public supervision over the SOEs should be guaranteed.

In addition, Zhang said employees at the SOEs should be included on the boards and the company should establish an appraisal system for the employees to protect their lawful rights.