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China to further regroup central State-owned enterprises

Updated: Aug 23,2016 7:11 AM Daily

China will speed up the regrouping of central State-owned enterprises to further reform and develop them.

As an important part of the supply-side structural reform, the merger and consolidation of State-owned assets will effectively reduce overcapacity and readjust economic structure under the context of the New Normal.

With regrouping efforts, State-owned assets will focus more on the public sector and strategic emerging industries, which are of significance to people’s livelihoods and national security and will create more internationally competitive enterprises.

Since the establishment of the State-owned Assets of Supervision and Administration Commission of the State Council 13 years ago, the number of central SOEs has been reduced from 196 to 105.

But the regrouping is not a simple reduction of the number of central SOEs as their assets expanded seven times during the past 13 years.

The continuing efforts to regroup central SOEs will eliminate “zombie enterprises” and improve the quality of State-owned assets as current central SOEs will be regrouped to 80 pro-innovation and international-competitive “national enterprises”.

Both market and government will play a role in the regrouping of central SOEs.

The ongoing regrouping of central SOEs mainly depends on the market, and marketization methods will be applied to regroup central SOEs, according to Li Jin, a senior expert in SOE reform.

In addition to the market, a “visible hand” will also be a rational choice as without government intervention, the streamlining of steel and coal industries will be costly and time-consuming simply through market mechanisms.

Some people fear that the regrouping of central SOEs will lead to market monopoly.

In the era of globalization, market boundaries keep expanding. So to judge the regrouping of central SOEs, one must have a global and national strategic view on whether it will increase the international competitiveness of Chinese enterprises, safeguard the security of national industries and people’s livelihoods, and protect the environment for the development of small and medium-sized enterprises, said Peng Jianguo, a researcher at the research center under the State-owned Assets Supervision and Administration Commission of the State Council.

To avoid a negative effect, reasonable top-level arrangements should be made to regroup central SOEs and competition should be kept among central SOEs which mainly focus on the domestic market as simply regrouping of them will create domestic monopolies and push up prices.

Successful regrouping will speed up overcapacity reduction, lower costs, and improve innovation capacity.

The regrouping of China Merchants Group and Sinotrans & CSC is a successful example. After regrouping, nearly one trillion US dollars’ worth of assets will be managed by China Merchants Group which became the biggest world-class logistics operator in China.

Regrouping efforts are also faced with many difficulties such as resettlement of laid-off workers and loss of State-owned assets.

Regrouping technology and innovation-based SOEs and establishing intangible asset management institutions will be an effective method to prevent loss of State-owned assets amid ongoing reform, according to Wang Wencheng, an economics professor at Jilin University.