China is to modernize its state-owned enterprises, promote mixed ownership and enhance the management of state assets, according to a guideline on reform released by the Party’s Central Committee and the State Council yesterday.

The competence of SOEs will be improved and they will become fully independent market entities, according to the guideline.

Major reforms in key areas will be achieved by 2020, when the government expects SOEs to be more robust and influential and have a greater ability to avoid risks. “The government should nurture a group of SOEs that are creative and can face international rivals by that time,” the guideline said.

Chinese SOEs enjoy a dominant position in the market with huge resources that include easier access to loans and more favorable policies, but they are seen as less efficient than private firms and less robust during the current economic slowdown.

Mixed-ownership appeared to be the most significant means to improve the efficiency of SOEs, the guideline said. SOEs should bring in multiple types of investors and the government should encourage them to go public.

Non-state firms will be encouraged to join the process through measures that include buying stakes and convertible bonds from or conducting share rights swaps with SOEs. SOEs will also be allowed to sell shares to employees.

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

The guideline said supervision over state-owned assets should be improved.

Supervision will be intensified both 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.

Boards of directors will have greater decision-making powers, executives will be more tightly supervised, and intervention by government agencies will be forbidden.

SOEs will be divided into two categories, for-profit entities and those dedicated to public welfare, it said. The former will be market-based and stick to commercial operations and aim to increase state-owned assets and boost the economy, while the latter will exist to improve people’s quality of life and provide goods and services.

China’s government manages 111 companies centrally under the State-owned Assets Supervision and Administration Commission. Local governments own and manage around 25,000 state-owned companies and the sector employs nearly 7.5 million people.

In 2013, a key Party meeting called for the market to play a greater role in the economy by giving private companies more opportunities.

(from: ShanghaiDaily.com)