China issues guideline to deepen SOE reforms

China's central authorities on Sunday issued a guideline to deepen reforms of state-owned enterprises (SOEs), the latest move from the government to invigorate torpid SOEs.

China will modernize SOEs, enhance state assets management, promote mixed ownership and prevent the erosion of state assets, according to the guideline released by the Communist Party of China Central Committee and the State Council.

The guideline will be a key framework document to guide and boost SOE reforms.

The government plans to achieve major reforms in key areas by 2020, when SOEs are expected to be more robust and influential and have greater ability to avoid risks.

The government will improve the competence of SOEs and turn them into fully independent market entities, the guideline said.

Zhang Yi, chairman of the State-owned Assets Supervision and Administration Commission (SASAC), said SOEs can enhance their competitiveness and be truly invigorated after becoming independent market entities.

The guideline said the government should nurture a group of SOEs that are creative and can face international rivals.

There are currently 110 state-owned conglomerates administered by the SASAC, while much more SOEs are owned by local governments.

A pillar of the economy, Chinese SOEs enjoyed dominant position in the market with huge resources including easier access to loans and more favorable policies, but they are seen as less efficient than private firms and less robust during the economic slowdown.

Reforms in SOEs have become a major task for China's policymakers during the battle against downward pressure.

Mixed-ownership reform appeared to be the most significant means to improve the efficiency of SOEs.

SOEs should bring in multiple types of investors and the government should encourage them to go public. No specific timetable will be set, but the government will promote it gradually, the guideline said.

Non-state firms will be encouraged to join the process through various ways, including buying stakes and convertible bonds from or conducting share rights swaps with SOEs. SOEs will also be allowed to experiment with selling shares to their employees.

Besides, a flexible and market-based salary system will be established. Salaries of SOE employees will be in line with market levels and decided by company performance. SOEs will also hire more professional managers, the guideline said.

The guideline also said the government will consolidate and clean up some SOEs for better resource allocation.

The authorities have been promoting mergers and acquisitions (M&A) among SOEs. China's two major bullet train makers completed consolidation in the first half of the year, while China Railway Corporation announced Sunday an asset reorganization plan with one of its subsidiary.

Giant SOEs administered by SASAC are also expected to go through massive M&A but the guideline did not give any details.

The guideline also noted that the supervision over state-owned assets should be improved during the SOEs reforms to ensure the security of assets.

Supervision will be intensified both from inside and outside SOEs to prevent abuse of power and the erosion of state-owned assets, and a mechanism for accountability will be established to track violations, including corruption and embezzlement.

SOE boards of directors will have greater decision-making powers, executives will be more tightly supervised, and intervention by government agencies will be forbidden under the new guideline.

According to the guideline, SOEs will be divided into two categories, for-profit entities and those dedicated to public welfare.

The former will be market-based and stick to commercial operations and should aim to increase state-owned assets and boost the economy, while the latter will exist to improve people's quality of life and provide public goods and services.