China says framework for state-owned enterprise reform ‘basically complete’

The framework for China’s state-owned enterprises (SOEs) is “basically complete” following five years of aggressive restructuring, the top administrator for central government-owned manufacturing companies said on Thursday.

Beijing is trying to streamline and modernize its bloated and debt-ridden state-owned sector and create conglomerates capable of competing globally.

The reforms have involved the restructuring of SOEs through reorganizations and mergers, reductions in excess capacity and the relocation of workers, though some analysts say much more needs to be done, especially to address high debt levels.

“The intensity of the central enterprises’ reorganization has been unprecedented,” Xiao Yaqing, chairman of the State-owned Assets Supervision and Administration Commission (SASAC), said at a media briefing in Beijing.

The government has ordered a series of mergers between central government-controlled conglomerates over the five-year period, cutting them to 98 from 117 under the control of SASAC.

“We won’t use the increase or decrease in the number of conglomerates or the size of firms to influence our targets (in restructuring of SOEs),” Xiao said.

“In the coming five years, we’ll focus more on boosting competitiveness and increasing quality of management of SOEs, especially in preserving and increasing value of state assets.”

Beijing also has advanced “mixed ownership”, basically allowing non-state enterprises and some foreign investors to take stakes in state-owned firms.

SASAC on Thursday declared progress, saying at the end of last year 68.9 percent of central SOEs and subsidiaries had adopted “mixed ownership”.

Nineteen central state-owned enterprise groups in the sectors of power, petroleum, natural gas, railway, airlines, telecommunications, and the military have been identified to carry trials in mixed ownership.

The average debt-to-asset ratio for central government-controlled conglomerates was 66.5 percent by the end of August, down from 66.7 percent by the end of last year, Xiao told reporters.

The SOE chief also said the risk created by high leverage within the state entries system was “completely controllable.”

Following several years of sluggish growth, China’s state-owned enterprises continued to rebound this year, with profits rising 21.7 percent in the first eight months, to 1.9 trillion yuan, from a year earlier, the Ministry of Finance said earlier this week.

Xiao also said SASAC was working to eliminate over-capacity and shut zombie firms, with 4,977 SOE units closing last year and involving the reallocation of 307,000 workers.

For the first eight months of the year, Xiao said 16.14 million tons of steel and 55.1 million tons of coal production had been eliminated.

China launched a “rejuvenate the northeast” campaign in 2003 to provide new forms of growth for the industrial region, once the mainstay of the country’s economy.

Xiao said he has seen positive changes taking place in state-owned firms in the northeast.
Source: Reuters

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