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Management reforms to revitalize SOEs

Author  :       Source  :    Global Times     2013-12-03

According to a planning blueprint published last Friday by the Central Committee of the Communist Party of China, the management system covering State-owned enterprises (SOEs) will be improved under an impending round of reforms.

The document's biggest highlight for the public sector is the shift away from enterprise management to capital management. A number of State-owned capital operating companies will be established as part of upcoming reforms, while some qualified SOEs will be reorganized as State-owned asset investment companies.

It's great to see the government realizing the need to shake up its current asset management policies. Over the past several decades, SOEs have played a leading role in the economy thanks to their hefty portfolios of vital assets. While most people have focused on the goods and services which these assets deliver, much less attention has been paid to the financial returns generated by them. If SOEs are forced to consider their profits as well as the management of their assets, the public sector will become much more efficient.

As things stand now, many large SOEs believe the only way they can "reform" is by selling off assets and land or by laying off and diverting redundant workers. Whether these reforms bring the State economy any closer toward the market though has long remained a matter of little concern to SOE chiefs.

By this point, the barriers which have historically stood in the way of deeper market reforms are well-known. First and foremost, SOE executives are assigned to their posts by State-owned asset supervision authorities. These executives must in turn run their investment and business strategies past authorities for approval. Under such circumstances, breakthrough SOE reforms have long been restrained by administrative impediments which are unconnected to the market.

Last week, the nation's top leaders again underscored the need to adopt modern, professional management practices within SOEs. This latest batch of central government reforms calls for the separation of government functions from SOE management. By dismantling administrative monopolies, as the plan stresses, authorities will be less able to directly interfere in company operations, investment strategies or income distribution.

Moreover, the blueprint released last Friday says that the central government will develop a diversified ownership economy that could see SOEs develop into mixed-ownership enterprises. If this comes to pass, all shareholders will be able to influence operational decisions, thereby minimizing the administrative role of the government in business matters.

The upcoming reforms are also expected to improve the country's business environment for private enterprises as well, giving them broader investment access to fields like energy and infrastructure projects. This will not only give private capital new opportunities to explore over the coming decades, but spur SOEs to respond to their more efficient peers. Without the introduction of more market pressure, it is hard to imagine where SOEs would find the impetus to beef up their management prowess.

Of course, it will take time and cooperation from many different parties to push forward this latest slew of SOE reforms. Numerous obstacles and difficulties should be expected along the bumpy road ahead.

For example, if modern management practices are to take hold in SOEs, these companies have to accept market discipline. Interested groups within the government will also have to come to terms with letting the market have more of say in the hiring of top SOE executives.

As the new reforms get underway, the government and private actors will also have to establish a system that distributes executive benefits and compensation in a market-oriented manner.

In my opinion, the government should select a group of SOEs and allow them to first experiment with naming their own heads in accordance with the market. Other SOEs should focus on inner structural reforms aimed at gradually opening them to market forces.

  

 

The author is an economic commentator.

Editor: Chen Meina

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