China Plans New Push to Revamp State Firms Starting Next Year

(Bloomberg) -- China’s policy makers will unveil a three-year action plan in early 2020 on the reform of state enterprises, with an aim to improve the performance of the sector and create world-class champions, according to state-owned newspapers.

The plan will tighten how the performances of state firms, often referred to as SOEs, are evaluated, and also seek “new breakthroughs” in introducing more strategic private-sector investors, Hao Peng, head of the country’s state assets manager, was cited in the China Securities Journal as saying.

China has been pushing for market-oriented overhaul of its bloated state sector for years, but criticism remains that many SOEs are still plagued by low efficiency and being dependent on government support. Policy makers said in November they plan to reduce and regulate the subsides to state companies and improve productivity and profitability. Beijing’s vast web of industrial subsidies and the behavior of its state-owned companies have also been a key part of the ongoing trade dispute with the U.S.

Starting 2020, the government will use two new indicators -- operating margin and investment in research and development -- to evaluate the performance of centrally-controlled SOEs in addition to net profits, total profits and asset-to-debt ratio, China Securities Journal cited Hao, chief of State-owned Assets Supervision and Administration Commission, as saying at a meeting in Beijing this week.

The new metrics are meant to promote “the ability of managers to make profit by improving operation efficiency” and encourage innovation, Zhou Lisha, a SASAC researcher, was quoted as saying in the report.

Slowing economic growth and the contraction in factory goods prices have weighed on Chinese state firms this year, whose profits growth dropped to 5.3% in the first 11 months, the slowest since 2017.

China is expected to unveil a three-year action plan on SOE reform in the first quarter of next year and these measures are set to instill “fresh momentum” in the country’s capital market, invigorate the real economy and cut overcapacity, China Daily reported on Wednesday, citing Li Jin, chief researcher at the China Enterprise Research Institute in Beijing.

China will also accelerate mixed-ownership reform, as well as reorganization and asset securitization of its SOEs next year to create a group of “world-class companies”, China Daily said. Power, non-ferrous metals, high-end offshore manufacturing equipment, environmental protection equipment and duty-free sales will likely become the new areas for restructuring in 2020, Li was cited as saying.

Last week, a number of programs for mixed-ownership reform have started at subsidiaries of central SOEs such as China Railway Rolling Stock Corp, State Power Investment Corp and State Grid Corp, with a state-owned hydro-power company bringing in eight strategic investors and raising funds of 24.2 billion yuan ($3.45 billion), China Daily said.

©2019 Bloomberg L.P.

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