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UPDATED: March 17, 2014 NO. 12 MARCH 20, 2014
Off Come the Shackles
Mixed ownership becomes a prominent feature of SOE reform
By Zhou Xiaoyan

UNTAPPED POTENTIAL: Two staff members operate machinery in an oilfield affiliated to Sinopec in Hetian, Xinjiang Uygur Autonomous Region, on July 23, 2013. The oil giant became the first of the state-owned oil companies to invite private capital investment in February (WANG FEI)

China's state-owned enterprises (SOEs) have long been criticized for their low efficiency, bureaucracy and even corruption.

Excessively preferential treatment from the government has put SOEs in a better position in market competition, with greater ease of access to resources such as land and credit. Some traditionally SOE-monopolized areas have even become a hot bed of corruption.

Amid increasingly louder calls for reforming SOEs, Chinese Premier Li Keqiang said the country will speed up the development of a mixed-ownership economy by allowing non-state capital investment in more state projects. Li made the remarks when delivering the government work report during the opening meeting of the Second Session of the 12th National People's Congress (NPC), China's top legislature, in Beijing on March 5.

"We will formulate measures for non-state capital to participate in the investment projects of centrally administered SOEs," Li said.

Non-state capital will be allowed to participate in a number of projects in industrial areas such as banking, oil, electricity, railway, telecommunications, resource development and public utilities, Li said.

A reform plan released after the Third Plenum of the 18th Communist Party of China (CPC) Central Committee held last November pledged to let the market play a decisive role and recognized the private sector's role in fostering growth and creating jobs.

The decision adopted at the plenum said China shall actively develop a mixed ownership economy, allowing more SOEs and other firms to develop into mixed-ownership companies.

In February, China's oil refiner Sinopec became the first SOE to deliver on that promise. The state-owned behemoth announced it would bring in social and private capital to sell its oil products, the first opening up of the largely monopolized area.

Sinopec is the first of the three big state oil companies, including PetroChina and CNOOC, to bring private capital into the distribution of refined oil products—one of the most profitable sectors of Sinopec's main businesses.

China is expected to release guidelines for SOE reform after the annual NPC session, according to media reports. State-owned and private companies both have their respective advantages and disadvantages. A mixture of the two is believed to be capable of creating a better corporate governance structure that can bring the best out of the two types.

Opposites attract

Li Yining, one of China's most noted economists, said China has much to do when it comes to deepening reforms, but the most urgent task should be building a mixed-ownership economy and it's the one which will return the most immediate benefits.

Huang Shuhe, Vice Chairman of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council, said developing a mixed-ownership economy is of great significance. "It can add to competitiveness of SOEs and help improve their corporate governance structure. It's also useful for promoting deeper integration between state-owned and private capital and making the best of their respective advantages."

Ding Yifan, Deputy Director of the Institute of World Development under the State Council's Development Research Center, said SOE reform comes as a direct result of complaints about SOEs' poor efficiency and their preferential treatment at the hands of the government.

Lu Guiqing, Chairman of China Construction Fifth Engineering Division Corp. Ltd., said the time has come to step up reforms on China's SOEs by diversifying ownership.

Lu said operating an SOE is like dancing with shackles. He said if the binding from the government is relaxed, SOEs will be able to move faster and perform better.

Data from the SASAC showed in December last year the number of centrally administered SOEs and their subsidiaries that had introduced private capital to form mixed ownership accounted for only 52 percent of the total.

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