State-owned enterprises directly administered by the central government are being urged to strip off sideline operations that distract from the focus on core businesses.
These enterprises, also known as central SOEs, are expected to achieve more than 100 billion yuan ($15.3 billion) in additional profits by the end of 2017 through reducing costs and improving efficiency.
The decision to deepen SOE reform as well as improve the quality and profitability of these companies was made on May 18 at an executive meeting of the State Council that was presided over by Premier Li Keqiang.
The meeting addressed 106 central SOEs, which are those governed by the State-Owned Assets Supervision and Administration Commission.
The Ministry of Finance said that central SOEs had 6,141 billion yuan in revenue from January to March for a net profit of 339 billion yuan, a decrease of 13.2 percent year-on-year.
The stock prices of 28 central SOEs that are going public surged on May 18, with 6 percent being the highest increase, as the Shanghai Composite Index dropped by 1.27 percent.
“Central SOEs have played an indispensable role in China’s social and economic development,” Premier Li said.
Central SOEs must strengthen cost management as well as trim receivables, inventories and financial losses, in addition to cutting debts, said a statement released after the meeting.
These enterprises were urged to increase competitiveness by fortifying their core businesses and removing sideline businesses in the next two years.
The central government plans to cut 10 percent of excess capacity for central SOEs in the coal, iron and steel sectors this year and in 2017. These SOEs are also required to reduce management hierarchy by half and strip off 20 percent of their subsidiary legal entities within three years.
Zhang Chunxiao, a researcher at the Chinese Academy of Governance, said all the measures were part of supply-side reform. “Central SOEs can only boost profits when they focus on core businesses with less costs in management and production processes.”
Huang Qunhui, director of the Institute of Industrial Economics at the Chinese Academy of Social Sciences, said, “The target can be realized, since most of the central SOEs can obtain high profits, if all the measures are properly implemented,” he said.