German giant Volkswagen has the distinction of being among the first automobile manufacturers to negotiate business with China when a Chinese delegation went to Germany in 1978 after the establishment of bilateral ties to discuss a partnership. Once again in June this year, it notched up another achievement when it increased its share holding ratio to 50 percent in Chinese state-owned automaker Anhui Jianghuai Automobile Group Corp., participating in mixed-ownership reform of Chinese state-owned enterprises (SOEs).

There are more signals about further reforms in China's SOEs, with a three-year action plan for SOE reform (2020-22) approved by the Central Committee for Deepening Overall Reform on June 30.

The three years are going to be crucial. The committee said the goal is to improve the basic economic system and optimize the layout and restructuring of the state-owned economy to make it more competitive, controllable and influential as well as more innovative and better able to withstand risks.

"SOEs are important material and political foundations for socialism with Chinese characteristics," the committee said. "During the process of coping with the novel coronavirus epidemic, SOEs have played an important role in ensuring emergency supplies, providing medical aid, resuming work and production, and stabilizing industrial and supply chains."

Li Jin, chief researcher with China Enterprise Research Institute, told China Economic Times that the new plan will see comprehensive SOE reform with weak links shored up. "SOE governance will be more mature, and SOEs will be more efficient," Li said.

Seven focuses

In April, Peng Huagang, Secretary General of the State-Owned Assets Supervision and Administration Commission (SASAC), had outlined the seven primary aspects the reform will focus on this year, the first year of the plan.

A modern enterprise system with Chinese characteristics will be established and improved, while adhering to the leadership of the Communist Party of China. A board of directors will be formed as needed, with the rights and responsibilities of all, including Party committees, managers and other governing bodies, clarified, to better implement the functions and powers of the board. A corporate governance mechanism will be established complete with effective checks and balances.

A market-based operation mechanism will be established and improved. There will be contract management of management members' tenures and a professional managers system will be created. SOEs will be encouraged to combine medium- and long-term incentive policies to increase their vitality and efficiency.

The reform of mixed-ownership at different levels and categories will be deepened with prudence. In particular, the government will promote in-depth transformation of the operating mechanisms of mixed-ownership enterprises and give full play to the positive role of the shareholders of non-SOEs.

The government will improve the distribution of state-owned assets and promote strategic restructuring and specialized integration to help enterprises focus on the real economy and strengthen their core business. The SOEs will play a special role in structural improvement, free circulation and stable growth to offset the negative impacts of the epidemic.

The supervision system of state-owned assets will be improved, with a focus on the management of capital. More power will be delegated to the lower levels to enable state-owned assets to play an effective role in investment and company operation.

Special projects will be pushed forward, such as comprehensive regional reform tests and demonstrative actions on reforms of technology-based enterprises, to give full play to their demonstrative and leading roles.

The Party's overall leadership vis-a-vis SOEs will be strengthened.

Mixed-ownership reform

The action plan seeks to accelerate the mixed-ownership reform of SOEs and proposes targets in stages. The SOEs subject to the mixed-ownership reform will be expanded, ultimately advancing the comprehensive reform of SOEs, Liu Xingguo from the research department of China Enterprise Confederation, told China Business News.

Zhao Chenxin, Deputy Secretary General of the National Development and Reform Commission, said at a policy briefing on May 24 that this year the commission will advance pilot reform of mixed ownership in 210 SOEs and conduct research to formulate a guideline on mixed-ownership reform.

By June 23, there were 460 mixed-ownership reform activities concerning SOEs listed in the A-share market, involving 227.79 billion yuan ($32.22 billion) in total, soaring by 364.65 percent and 765.97 percent, respectively, year on year.

Li said in the future mixed-ownership reform will be extended to non-major businesses, strategic investment, management systems, monopoly enterprises and managerial equity incentives.

Reorganizations in pipeline

Zhao said guidelines will be issued for optimizing the layout and restructuring of the state-owned economy.

A pilot program has already seen five major state-owned power enterprises—China Huaneng Group, China Datang Corp., China Huadian Corp., State Power Investment Corp. and China Energy Investment Corp.—reach an agreement on reorganizing 48 thermal power plants in five areas by June 30. After that, all the thermal power plants in each of the five areas will be operated by a single SOE from the five.

Li said in the future, reorganization may be carried out in four major forms.

In industries that have high competition but low concentration of resources and surplus capacity, such as natural resources, iron and steel, automobile and equipment manufacturing, enterprises will be reorganized to reduce their number but expand their size.

Enterprises from the upstream and downstream of an industrial chain may be reorganized. For instance, thermal power enterprises and steel enterprises, both with serious excess capacity, can be reorganized to reduce production capacity.

Resources within the same enterprises, especially within large-scale corporate groups, can be restructured to relocate assets and organizations.

Reorganization can be also carried out between central and local SOEs and between Chinese SOEs and foreign corporations. The key sectors for such reorganization include equipment manufacturing, the chemical industry, marine engineering equipment and overseas oil and gas resources.

"In the future, state-owned capital will be increasingly invested in important industries, key sectors and strategic emerging industries. Strategic and specialized reorganization of SOEs will become a top priority of the 14th Five-Year Plan (2021-25)," Li said.

(Print Edition Title: Reshuffle and Revitalize)

Copyedited by Sudeshna Sarkar

Comments to wangjun@bjreview.com