Page 98 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China
entity industrial groups, investment companies and oversight systems” that have to be resolved if the state is
operating companies, China Business News reported. Peng to unshackle SOEs to thrive in a competitive environment.
Huagang said the function of state assets investment “The core of the issue is whether we can stimulate vitality
and operating companies would be clarified gradually. in the SOEs,” said Xu. Fengming Liu, Vice President of GE,
State asset investment companies focus on promoting and Vice President and General Counsel of GE, People’s
industrial integration, as well as the transformation Republic of China, agreed that the challenge before SOEs
and upgrade of the sector in some key regions, and the is no different from other companies. “We are all facing
optimization of the state assets layout structure, while the same problem, how to make our companies bigger
operating companies focus on improving efficiency and and stronger,” he said (Yang, Opportunities).
rational flow of State assets. “The country also plans to
promote the restructure of coal power, heavy equipment Signs suggest that the Party is rethinking at least
manufacturing and steel sectors and to explore overseas some of its policies. A senior official in charge of
asset integration,” Peng said. Currently, China has 102 supervising SOEs said in June 2017 that it would be wise
centrally administered SOEs, which manage the bulk to delegate power to company boards, giving them
of the country’s State assets. The government pledged more say over long-term planning and hiring decisions.
to deepen the State-owned enterprises (SOE) reform The following month, Li Keqiang, China’s Prime Minister,
and promised measures, including the introduction said the government might try to implement a system
of a mixed ownership system and the incorporation of performance-linked pay at big state firms. The most
of more efforts to make SOEs leaner, healthier and important role in this is played by SASAC, the arm of the
better in performance. According to the Ministry of government that oversees most SOEs. It has pushed for
Finance, Chinese SOEs administered by different levels the creation of bigger “national champions” under its
of government – including central SOEs – have made a control. It has combined China’s two biggest railway-
combined profit of 825 billion yuan during the first four equipment makers and its two biggest shipping groups,
months of 2017, up 24.8 percent year-on-year. The rate and is reportedly working to knot together its two
outpaced the combined business revenue growth by biggest chemical producers. Medium-sized companies,
all SOEs, standing at 17.5 percent year-on-year, which too, have seen plenty of such activity, affecting property,
has made 15.6 trillion yuan during the same period, the ports, cement and more. Some mergers make sense: for
Ministry said (Song, China State-owned). instance, the steel sector is highly fragmented, a result of
local protectionism. But most combinations look more
Reforms were accelerating by June 2017 as SOEs dubious, because state firms are already oversized. The
prepare to tap opportunities from internationalization average SOE has about 13 times more assets than the
and from the national Belt and Road Initiative. Both average private-sector firm, according to World Bank
Ma Guoqiang, Chairman and Party Secretary of China estimates (Economist).
Baowu Steel Group Corporation, and Xu Jinghong,
Chairman of Tsinghua Holdings, said that they faced The risk is that such supersized SOEs could hurt
relatively few restrictions in the reform process in terms the global economy. In a paper published earlier in
of restructuring their business and shareholding, and in 2017, Caroline Freund and Dario Sidhu of the Peterson
recruiting and retaining outside talent. Mixed ownership Institute of International Economics, a think-tank, argued
including the introduction of foreign capital was allowed, that businesses around the world were operating in
and joint ventures with private Chinese companies and more fragmented environments, with the exception
multinationals encouraged. In addition, management is of sectors in which Chinese SOEs have large footprints.
free to introduce international best practices in corporate In these sectors, such as mining and civil engineering,
governance and in incentivizing employees. Ma said concentration has increased as China’s state firms have
that under the present round of SOE reforms, the Baowu bulked up. Normally, it is the most productive companies
Group, which has merged its Baosteel and Wuhan Steel, that grow the fastest. China’s SOEs, by contrast, are
is focused on spinning off companies that are not core to much less efficient than their international counterparts,
its steel operations, such as its food business. Xu noted even when they are growing more quickly. Global
that an important reform issue revolves around asset concentration has, however, risen significantly in several
ownership, and that determination of whether the state or industries where Chinese SOEs dominate, and China’s
management controls the assets, as well as devolution of SOEs are on average too large and expanding too fast
decision-making, are critical as SOEs position themselves given their low levels of productivity (Freund and Dario).
for the future. He noted that there are still “complicated
98
entity industrial groups, investment companies and oversight systems” that have to be resolved if the state is
operating companies, China Business News reported. Peng to unshackle SOEs to thrive in a competitive environment.
Huagang said the function of state assets investment “The core of the issue is whether we can stimulate vitality
and operating companies would be clarified gradually. in the SOEs,” said Xu. Fengming Liu, Vice President of GE,
State asset investment companies focus on promoting and Vice President and General Counsel of GE, People’s
industrial integration, as well as the transformation Republic of China, agreed that the challenge before SOEs
and upgrade of the sector in some key regions, and the is no different from other companies. “We are all facing
optimization of the state assets layout structure, while the same problem, how to make our companies bigger
operating companies focus on improving efficiency and and stronger,” he said (Yang, Opportunities).
rational flow of State assets. “The country also plans to
promote the restructure of coal power, heavy equipment Signs suggest that the Party is rethinking at least
manufacturing and steel sectors and to explore overseas some of its policies. A senior official in charge of
asset integration,” Peng said. Currently, China has 102 supervising SOEs said in June 2017 that it would be wise
centrally administered SOEs, which manage the bulk to delegate power to company boards, giving them
of the country’s State assets. The government pledged more say over long-term planning and hiring decisions.
to deepen the State-owned enterprises (SOE) reform The following month, Li Keqiang, China’s Prime Minister,
and promised measures, including the introduction said the government might try to implement a system
of a mixed ownership system and the incorporation of performance-linked pay at big state firms. The most
of more efforts to make SOEs leaner, healthier and important role in this is played by SASAC, the arm of the
better in performance. According to the Ministry of government that oversees most SOEs. It has pushed for
Finance, Chinese SOEs administered by different levels the creation of bigger “national champions” under its
of government – including central SOEs – have made a control. It has combined China’s two biggest railway-
combined profit of 825 billion yuan during the first four equipment makers and its two biggest shipping groups,
months of 2017, up 24.8 percent year-on-year. The rate and is reportedly working to knot together its two
outpaced the combined business revenue growth by biggest chemical producers. Medium-sized companies,
all SOEs, standing at 17.5 percent year-on-year, which too, have seen plenty of such activity, affecting property,
has made 15.6 trillion yuan during the same period, the ports, cement and more. Some mergers make sense: for
Ministry said (Song, China State-owned). instance, the steel sector is highly fragmented, a result of
local protectionism. But most combinations look more
Reforms were accelerating by June 2017 as SOEs dubious, because state firms are already oversized. The
prepare to tap opportunities from internationalization average SOE has about 13 times more assets than the
and from the national Belt and Road Initiative. Both average private-sector firm, according to World Bank
Ma Guoqiang, Chairman and Party Secretary of China estimates (Economist).
Baowu Steel Group Corporation, and Xu Jinghong,
Chairman of Tsinghua Holdings, said that they faced The risk is that such supersized SOEs could hurt
relatively few restrictions in the reform process in terms the global economy. In a paper published earlier in
of restructuring their business and shareholding, and in 2017, Caroline Freund and Dario Sidhu of the Peterson
recruiting and retaining outside talent. Mixed ownership Institute of International Economics, a think-tank, argued
including the introduction of foreign capital was allowed, that businesses around the world were operating in
and joint ventures with private Chinese companies and more fragmented environments, with the exception
multinationals encouraged. In addition, management is of sectors in which Chinese SOEs have large footprints.
free to introduce international best practices in corporate In these sectors, such as mining and civil engineering,
governance and in incentivizing employees. Ma said concentration has increased as China’s state firms have
that under the present round of SOE reforms, the Baowu bulked up. Normally, it is the most productive companies
Group, which has merged its Baosteel and Wuhan Steel, that grow the fastest. China’s SOEs, by contrast, are
is focused on spinning off companies that are not core to much less efficient than their international counterparts,
its steel operations, such as its food business. Xu noted even when they are growing more quickly. Global
that an important reform issue revolves around asset concentration has, however, risen significantly in several
ownership, and that determination of whether the state or industries where Chinese SOEs dominate, and China’s
management controls the assets, as well as devolution of SOEs are on average too large and expanding too fast
decision-making, are critical as SOEs position themselves given their low levels of productivity (Freund and Dario).
for the future. He noted that there are still “complicated
98
