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China’s Overhaul of State Companies Approaches Modernization Milestone
Transformation of corporate structure of most major government-owned enterprises should be complete by year’s end
July 26, 2017 7:52 a.m. ET
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BEIJING—China is close to completing a long-targeted overhaul of operations at its state-owned enterprises, or SOEs, saying Wednesday that a modernization of their corporate structures will be finished this year.
All major companies owned by the central government, excluding financial and cultural firms, will be transformed into limited-liability or joint-stock companies by Dec. 31, according to a plan released by the State Council, or cabinet.
Already, about 90% of these state-owned companies have completed the restructuring, the cabinet said.
As part of the overhaul, companies are setting up boards of directors to make important decisions, such as those related to hiring and compensation, the State Council said.
However, the ruling Communist Party, which currently appoints senior managers at the SOEs, is expected to maintain a strong influence over decision-making at the companies. The cabinet said the enterprises must ensure the party’s “core leadership” role through their appointments of company officers and establishment of party organizations.
The statement came as the government continues efforts to energize China’s often-lumbering state companies and make them more competitive, including through combining some into larger entities. Completing this latest wave of restructuring is likely to pave the way for further measures.
Ying Wang, a senior director at Fitch Ratings, said the overhaul was an initial step toward increasing efficiency and improving internal controls at state companies.
A party congress set to be held this fall is expected to further endorse “mixed ownership” structures allowing state companies to sell stakes to attract private capital—a process already under way.
The goal to restructure SOEs was first proposed at a major party meeting in 1993 that set China on a path to building a “socialist market economy with Chinese characteristics”—a euphemism for blending capitalism with state planning.
State-owned companies, while now much fewer in number, still dominate important sectors of the economy, including banking, energy and telecommunications.
An overall economic slowdown in recent years has crimped SOEs’ profits, especially in backbone heavy-industrial sectors hurt by excess capacity.
However, a property boom and government spending on infrastructure over the past year have generated a turnaround, with state companies reporting double-digit profit growth during the first half of 2017.
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