Reform plan for Chinese SOEs stresses increased state supervision

BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/38

China’s State-Owned Assets Supervision and Administration Commission (SASAC) of the State Council last week released an overview of its programme to reform state-owned enterprises (SOEs). The core message is that SOE reform does not mean extensive privatisation of state firms, but rather stricter state governance. The Communist Party will now have greater say in the appointment of directors. Corporate reporting duties to the party will also increase. The reform plan calls for reasserting SOEs instead of decreasing their significance and giving private firms a larger role in the economy.

China’s large SOEs have vast holdings that extend to businesses completely unrelated to their core business and tolerate much lower productivity than private firms. Under the reform plan, productivity would be boosted e.g. by increasing private minority stakes and having SOEs divest firms that perform poorly or are unrelated to the core business and provide opportunities for corruption. For example, state oil company CNPC owns hotels it now must sell. The reform plan calls for the closure of unprofitable SOEs, which seems difficult given the political backlash officials will likely face from such actions.

Show weekly Review 2015/37 Show weekly Review 2015/39