China vows to reform State-dominated sectors

16 january 2013

BEIJING — The Chinese government has vowed to reform State-dominated industries and aid them in market entry, a senior official said Wednesday.

The country will stick to reforming its state-owned enterprises and helping them engage the market, said Wang Yong, director of the State-Owned Assets Supervision and Administration Commission.

He made the comments while delivering a report on state-owned enterprise reform at the bi-monthly session of the Standing Committee of the National People’s Congress, China’s top legislature.

The country will speed up reforms for the railway, postal and salt industries so that companies in those sectors can relinquish their roles as supervisors and stakeholders, Wang said.

“More efforts will be made to reform the power, telecommunications, oil and petrochemical industries. Market entry into these sectors will be expanded based on the development of these industries,” he said.

The government will push for large state-owned enterprises to go public or list their main businesses if conditions allow, Wang said.

The government will encourage companies that are not fit to be listed to hasten restructuring, as well as introduce corporate governance for companies solely held by the state, he said.

China has endeavored to reform its bulky state-owned enterprises since it introduced its market economy in the late 1970s.

So far, more than 90 percent of state-owned enterprises have become corporations and some of them have been restructured to become shareholding companies, according to Wang’s report.

About 72 percent of state-owned enterprises under central administration have become corporations or shareholding firms, up from 30.4 percent in 2003.

As of the end of last year, the country had 144,700 state-owned or state-controlled enterprises, excluding financial institutions, with total assets worth 85.37 trillion yuan ($13.55 trillion).

In 2011, the enterprises reported revenues of 39.25 trillion yuan, accounting for 35 percent of total industrial and business revenues, as well as profits of 2.58 trillion yuan, accounting for 43 percent of the total.

Wang said a number of problems still need to be addressed in the reform of state-owned enterprises.

Several flagship state-owned enterprises have been slow to transform into corporations and those that have already been restructured still need to improve their corporate governance, especially the management of human resources, he said.

A number of state-owned enterprises have failed to respond to the reforms, as they are inclined to expand their business or increase revenues instead of cracking the hard nut of reform and improving efficiency, Wang said.

“Reform in some key sectors has lagged behind,” he said.

A majority of state-owned enterprises are in traditional industries instead of high-tech and emerging industries, he said, adding that they largely rely on expanding investment to boost growth.

State-owned enterprises in some sectors are not competitive enough and have been troubled by negative competition, inefficient cost control and pollution, he said.

Non-operational costs for state firms remain heavy, including costs for sponsoring schools, hospitals and communities, as well as pensions and allowances for needy employees.

According to Wang’s report, state-owned enterprises under central administration are sponsoring about 8,000 public institutions, including schools, hospitals and community centers, and paying pensions for 5.23 million retired employees.

To sharpen the competitive edge of state-owned companies, the government will encourage them to restructure their business, direct state assets toward more promising sectors and support them in going public and buying stakes abroad, as well as encourage private capital to invest in state-owned companies.

Another focus of the reforms is tightened supervision.

Wang said the administration’s interference in the operation of state firms remains a problem.

“We have seen a tendency for some local governments to meddle in the everyday operations of state-owned enterprises,” he said, adding that companies have received an increasing number of repeated inspections.

Supervision for state-owned assets must be smoothed and the supervision of natural resources and state assets in the financial and cultural sectors must be explored, he said.

The central government plans to set up a budget system covering all state-owned enterprises nationwide so as to better allocate and spend revenue and interest gained from state assets.

Shareholders, auditing agencies and discipline inspection agencies should work more closely to supervise state-owned enterprises, Wang said.