Govt unveils guidelines to deepen SOE reforms

China on Sunday unveiled a top-down plan to further reform its State-owned sector that will affect 150,000 State-owned enterprises (SOEs), 100 trillion yuan ($15.69 trillion) worth of assets and 30 million employees. The guidelines, jointly issued by the Communist Party of China's Central Committee and the State Council, China's cabinet, will help improve corporate governance and assets management. The government said it expects "decisive results by 2020," according to the Xinhua News Agency. Experts said that the guidelines clearly define the nature of State-owned capital and assets and will help enliven the State sector, a key sector in China's economic transformation and upgrading. The guidelines split China's SOEs into two groups: those that seek commercial interests and those that serve public interests. "This categorization will allow SOEs to better fulfill their duties, which are threefold, with economic, social, and political responsibilities," Zhang Chunxiao, a professor at Peking University, told the Global Times Sunday. "Commercial SOEs will focus on growing its value, maintaining its vibrancy and striving to be leaders in various sectors. Public SOEs will focus on safeguarding people's livelihoods and providing high-quality, affordable public goods and services," Zhang said. Some State-led sectors, such as State-operated highways, grid companies and telecom companies have a duty to build the infrastructure of underdeveloped regions even if they are less-profitable from a business perspective, Zhang noted. The guidelines also call for a shift toward the management of State capital instead of SOEs, giving companies' management full play in running the company. State-owned capital investment companies and State-owned capital management companies will be established. This gives inspectors more chances to supervise, and the management of companies to focus on growing their businesses, Zhang said. Converting some State capital to preferred stocks means that the State would abdicate its management role, and would only require a fixed return, said Tian Yun, editor-in-chief of the Macro China Information Network. The guidelines likewise said as much as 30 percent of the earnings of SOEs will be used to improve people's livelihoods by 2020, and a portion of State capital will be used to beef up social security funds. "It would be a feather in China's cap if this goal is achieved by 2020. And there is still a chance of the share being raised further by 2025 and 2030," Tian said, adding that such a policy will help ease China's problem of over-investment and weak consumption. "Many industries are currently saddled with overcapacity, so their earnings can be used to boost public services and recuperate social security funds," Tian said. More State companies will restructure and prepare for public listing, said the guidelines. In the middle term to long term, the reform provides a chance for the government to stabilize the capital markets and avoid wild fluctuations and speculative trading. The guidelines also said that State firms can invite investors to help diversify their ownership by developing Public-Private Partnerships (PPP). Faced with mounting local government debt and a need to channel funds to urbanization, China released two PPP guidelines in 2014. In July, the Chongqing Municipality in Southwest China rolled out 33 projects worth 130 billion yuan to solicit private capital in the form of PPPs. Both experts said that SOEs are the building blocks of public ownership, and warned that SOE reform should not lead to the loss of State assets and worsen China's income gap.