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6 White Paper on the Business Environment in China
promote the rule of law, such distorted practices must vested interests). Rather than remain hands-off, it wants the
change first, and the absurdity of the same pair of hands new asset-management firms to get their hands dirty by forc-
holding both legislative power and administrative ing consolidation of the biggest SOEs into gargantuan national
power must end.” champions. And it seeks to continue supervising many of the
Liu Junhai, professor of law at Renmin University of Chi- mega-SOEs created by such mergers. 37
na, The Economic Observer, Oct 20
While China’s leaders have ruled out wholesale privatiza-
“Efforts to promote the rule of law might fail without tion, the new plan also calls for “mixed ownership”, with sales
the protection of citizens’ property. We learn that lesson of minority stakes and the listing of shares seeming to be on the
from numerous violent demolitions of residents’ houses. horizon. Such moves could inject a dose of market discipline,
A complete system of property rights law must be estab- according to The Economist, as an influx of fresh outside inves-
lished. Then the ordinary people, finding their rights pro- tors will push for greater transparency and better corporate gov-
tected, will support the rule of law from the heart.” ernance at SOEs. 37
hexun.com, Oct 20
However, there is a caveat: while the reform plan advocates
“President Xi Jinping emphasized obedience to the “mixed ownership”, it also vows to “prevent the loss of state as-
Constitution. But China has neither a constitutional sets”. This suggests that a chunk of the minority stakes in SOEs
court nor a constitutional review system. We expect the will be sold to other state firms, rather than just to private in-
Fourth Plenum to be innovative and to discuss the pos- vestors. The plan also says “leadership by the party” will be
sibility of such a system so that the Constitution will be strengthened at state enterprises, ensuring that the Communist
truly respected. This is a prerequisite to the rule of law.” Party will still be largely influential in running these enterprises
Jiao Hongchang, professor of law at China University of and, The Economist notes, putting question to the idea that out-
Political Science and Law, Beijing News, Oct 17 13 side investors will even have a voice. 37
In December 2014, China Daily published a special edi- The guidance was jointly issued by the Communist Party’s
torial entitled “Constitution Day Matters” in which it points Central Committee and the State Council, China’s cabinet,
out that “given the prevalent ignorance of and disregard for the Xinhua said in its official Weibo microblog. No further details
Constitution public officials have displayed, it is necessary to were given. 35
have all State functionaries take an oath to the fundamental
law.” It also went on to quote the American legal scholar Harold “In the process of deepening reforms of state-owned enter-
J. Berman, who said “The law must be believed in, or it will exist prises, the leadership of the party can only be strengthened, not
in name only,” before going on to observe that “that is precisely weakened,” said Zhang Yi, who runs the State-Owned Assets
where [China’s] problem lies.”3 Supervision and Administration Commission of the ruling
State Council, in a statement.
SOE Reform: Tough Nut to Crack
The step comes nearly two years after President Xi Jinping
In September 2015, China issued guidance on reforming called for market forces to play a decisive role in the better allo-
state-owned enterprises (SOEs), including the introduction of cation of resources in the world’s second-largest economy. The
“mixed ownership” of state firms and efforts to improve their released master plan was a confusing mix of conservative and
corporate governance. According to Xinhua, China “will mod- liberal elements. Analysts say the plan reflected political wran-
ernize SOEs, enhance state assets management, promote mixed gling by rival factions with sharply different views of how SOE
ownership and prevent the erosion of state assets.” 35 reform should proceed. 34
The new SOE guidelines appear to be aimed at much-need- “Non-public investment entities can participate in SOE
ed long term structural change. The new plan calls for the cre- restructurings, listings, capital raisings and enterprise manage-
ation of new state asset-management companies. The Ministry ment through equity stake purchases, share subscriptions, con-
of Finance, keen to raise the dividends paid to the treasury by vertible bonds, equity swaps and other methods,” said the State
SOEs, is pushing for this market-minded approach. Council. 35
Unfortunately, as The Economist observes, resistance is com- Among the competing factions, liberals generally favor an
ing from the State-owned Assets Supervision and Administra- emphasis on privatization, whereas conservatives want to con-
tion Commission (SASAC), which currently micromanages solidate party control over SOEs and merge them into even
the biggest Chinese SOEs (and probably operates out of its own larger groups.
30 The cabinet said China would pursue mixed ownership in
industries including electricity, oil and gas, telecommunications,
military equipment and civil aviation. It also said SOEs should in-
troduce foreign investment through joint ventures, restructuring,
mergers and acquisitions and offshore financing. 38
promote the rule of law, such distorted practices must vested interests). Rather than remain hands-off, it wants the
change first, and the absurdity of the same pair of hands new asset-management firms to get their hands dirty by forc-
holding both legislative power and administrative ing consolidation of the biggest SOEs into gargantuan national
power must end.” champions. And it seeks to continue supervising many of the
Liu Junhai, professor of law at Renmin University of Chi- mega-SOEs created by such mergers. 37
na, The Economic Observer, Oct 20
While China’s leaders have ruled out wholesale privatiza-
“Efforts to promote the rule of law might fail without tion, the new plan also calls for “mixed ownership”, with sales
the protection of citizens’ property. We learn that lesson of minority stakes and the listing of shares seeming to be on the
from numerous violent demolitions of residents’ houses. horizon. Such moves could inject a dose of market discipline,
A complete system of property rights law must be estab- according to The Economist, as an influx of fresh outside inves-
lished. Then the ordinary people, finding their rights pro- tors will push for greater transparency and better corporate gov-
tected, will support the rule of law from the heart.” ernance at SOEs. 37
hexun.com, Oct 20
However, there is a caveat: while the reform plan advocates
“President Xi Jinping emphasized obedience to the “mixed ownership”, it also vows to “prevent the loss of state as-
Constitution. But China has neither a constitutional sets”. This suggests that a chunk of the minority stakes in SOEs
court nor a constitutional review system. We expect the will be sold to other state firms, rather than just to private in-
Fourth Plenum to be innovative and to discuss the pos- vestors. The plan also says “leadership by the party” will be
sibility of such a system so that the Constitution will be strengthened at state enterprises, ensuring that the Communist
truly respected. This is a prerequisite to the rule of law.” Party will still be largely influential in running these enterprises
Jiao Hongchang, professor of law at China University of and, The Economist notes, putting question to the idea that out-
Political Science and Law, Beijing News, Oct 17 13 side investors will even have a voice. 37
In December 2014, China Daily published a special edi- The guidance was jointly issued by the Communist Party’s
torial entitled “Constitution Day Matters” in which it points Central Committee and the State Council, China’s cabinet,
out that “given the prevalent ignorance of and disregard for the Xinhua said in its official Weibo microblog. No further details
Constitution public officials have displayed, it is necessary to were given. 35
have all State functionaries take an oath to the fundamental
law.” It also went on to quote the American legal scholar Harold “In the process of deepening reforms of state-owned enter-
J. Berman, who said “The law must be believed in, or it will exist prises, the leadership of the party can only be strengthened, not
in name only,” before going on to observe that “that is precisely weakened,” said Zhang Yi, who runs the State-Owned Assets
where [China’s] problem lies.”3 Supervision and Administration Commission of the ruling
State Council, in a statement.
SOE Reform: Tough Nut to Crack
The step comes nearly two years after President Xi Jinping
In September 2015, China issued guidance on reforming called for market forces to play a decisive role in the better allo-
state-owned enterprises (SOEs), including the introduction of cation of resources in the world’s second-largest economy. The
“mixed ownership” of state firms and efforts to improve their released master plan was a confusing mix of conservative and
corporate governance. According to Xinhua, China “will mod- liberal elements. Analysts say the plan reflected political wran-
ernize SOEs, enhance state assets management, promote mixed gling by rival factions with sharply different views of how SOE
ownership and prevent the erosion of state assets.” 35 reform should proceed. 34
The new SOE guidelines appear to be aimed at much-need- “Non-public investment entities can participate in SOE
ed long term structural change. The new plan calls for the cre- restructurings, listings, capital raisings and enterprise manage-
ation of new state asset-management companies. The Ministry ment through equity stake purchases, share subscriptions, con-
of Finance, keen to raise the dividends paid to the treasury by vertible bonds, equity swaps and other methods,” said the State
SOEs, is pushing for this market-minded approach. Council. 35
Unfortunately, as The Economist observes, resistance is com- Among the competing factions, liberals generally favor an
ing from the State-owned Assets Supervision and Administra- emphasis on privatization, whereas conservatives want to con-
tion Commission (SASAC), which currently micromanages solidate party control over SOEs and merge them into even
the biggest Chinese SOEs (and probably operates out of its own larger groups.
30 The cabinet said China would pursue mixed ownership in
industries including electricity, oil and gas, telecommunications,
military equipment and civil aviation. It also said SOEs should in-
troduce foreign investment through joint ventures, restructuring,
mergers and acquisitions and offshore financing. 38
