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Victoria Ruan

The Communist Party's latest emphasis on retaining control of the mainland's state-owned enterprises, which dominate sectors including the energy market and telecommunications, have left analysts puzzled.
Research institutes, including the International Monetary Fund, have criticised Beijing for moving too slowly with SOE reform to help boost the competitiveness and efficiency of the mainland economy.
They have urged the government to level the playing field between the public and private sectors, to strengthen corporate governance, improve the returns of the state giants, and reduce government intervention in their business decisions.
But guidelines rolled out at a June 5 meeting chaired by President Xi Jinping suggested party influence in the state sector was set to deepen, which has confused researchers who were hoping reform would give market forces a bigger say.
"Sticking to the party's leadership is a unique advantage for SOEs," the political leaders at the central panel for deepening overall reform said. This would be critical in making the firms "stronger, better and bigger", preventing state-asset losses and curbing corruption, they said.
It’s puzzling … It reads to me like SOE reform will see little progress
ZHANG MING, ANALYST
They also laid out principles, including that the party would retain the right to appoint SOE leaders and that party organs must be included as part of their corporate governance system.
"It sounds quite puzzling to me," Renmin University political science professor Zhang Ming said. "It reads to me like SOE reform will see little progress."
European Union Chamber of Commerce in China president Joerg Wuttke said: "The fact that party organs must be established within SOEs indicates the magnitude of difficulties reformers face to reorganise these firms."
Wuttke said he did not see any immediate impact on foreign businesses, but urged Beijing to ensure state-owned firms' accountability and financial transparency, or even allow private entrepreneurs to gain control of some firms whose low efficiency had affected the economy.
Research by the bank Societe Generale has found that industrial SOEs' return on equity was only half that of their privately-owned peers, although the state sector takes up nearly two-thirds of the economy's total capital thanks to a distorted resource allocation system.
Since the Communist Party held its third plenum in 2013 to lay out a reform framework for the next decade, many proposals have been raised to make state-owned firms more competitive.
Some said China could adopt a model similar to the Singapore's state investment company, Temasek, in which executives are hired through competition to ensure sound profitability.
Yet little progress has so far been made, despite reports about plans to create even bigger state giants through mergers, which has fuelled concern they would further squeeze out private players.
Gary Liu, an executive deputy director of the Shanghai-based CEIBS Lujiazui Institute of International Finance, said the party's latest guidelines "shocked or disappointed lots of us".
"From what we can see, it's negative to SOE reform," he said.
It was understandable, Liu said, that any leader would hope to prevent losses from the restructuring of state assets.
"But at the centre of controversies is the conflict between strengthening the party's leadership and the need to separate state power from corporate management. If the separation fails, the SOE reform will have already lost half the battle," he said.
Liu said he would wait for more detailed action plans to make further assessments.
A key measure would be whether Beijing would take further steps to break up state monopolies. Another possibility was that some SOEs might be privatised so they would no longer be governed by the party, Liu said.
Since taking office in 2013, Xi's intense graft crackdown - partly to defend the party's political legitimacy - has expanded from government agencies to state-run enterprises.
Dozens of senior leaders from the country's biggest state firms, including China National Petroleum Corporation, China Southern Power Grid, and the Baosteel Group, have come under corruption investigation.
The top leadership has vowed to strengthen the rule of law, but also refused to simply copy the Western judicial system. Rather, Beijing has insisted that party members first be governed by stricter party discipline.
Huang Yong, a law professor at the University of International Business and Economics in Beijing, said it was true that party rules were "theoretically" tougher than criminal laws "under some circumstances".
For example, party members who have extramarital affairs might face party discipline, even though they might not be subject to legal punishment, he said.
But in the commercial sector, firms would be more accountable if they were governed by a system made up of a chief executive officer, a board of directors, a board of supervisors and independent directors, Huang said. Listed companies were also more transparent if they followed market rules, he said.
"Corporate governance and a company's competitiveness relies more on implementation of the law and supervision by market rules," Huang said.


China's tight control over state firms not progress, analysts say

A worker cycles around a China National Petroleum Corporation factory in Lanzhou, Gansu province. Photo: Reuters

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China

Analysts concerned over party's insistence on retaining power over SOEs despite vow to reform them to boost competitiveness
