No more Jurassic Park for Chinese SOEs?
Asia Unhedged hopes it’s really dinosaur housecleaning time in China.
Beijing disclosed details over the weekend of how it hopes to restructure its massive state-owned enterprises (SOEs). The steps include partly privatizing these behemoths to help kick-start growth at a time when China’s economy is slowing.
The guidelines, jointly issued by the Communist Party’s Central Committee and China’s cabinet, also include plans to clean up and integrate some state firms, according to Xinhua.
SOEs served China admirably for decades as the cutting edge of the country’s export-led economy. They mirrored on a much bigger scale what Park Chung-hee’s family-run chaebols achieved for South Korea. But China and other Asia nations are outgrowing such vestiges of their command-post economies. China’s underperforming SOEs are also exacerbating the country’s current economic slowdown.
Privately-owned firms and entrepreneurs in China, moreover, are clamoring for the government to do away with the policies that have given the bottle-fed SOEs a huge jump over the private sector. “Almost everything the government does is for these SOEs,” a mainland bank executive complained to Asia Unhedged at a dinner not long ago.
Xinhua says officials are eyeing “mixed ownership” of the SOEs by bringing in private investment in a decisive way by 2020. But the deadline is still years away. The government will also not force these giants to accept “mixed ownership.” Nor are planners setting a timetable, preferring to give a green light only when conditions are deemed appropriate.
At last count, the Chinese government runs 111 companies centrally under the State-owned Assets Supervision and Administration Commission, or SASAC. Local governments own and manage around 25,000 state-owned companies and the sector employs nearly 7.5 million people.
It appears that fears of layoffs and ensuing social instability are causing the government to stop short of a total overhaul.
That’s too bad. But on a more upbeat note, Xinhua reports that SOEs will be allowed to bring in “various investors” to help diversify share ownership. More state firms also will be nudged to restructure in order to prepare for stock listings.
Private investors will be encouraged to buy stakes in state firms, buy convertible bonds issued by state firms, or swap shares with state firms. More steps are planned to curb corruption during the reform process.
Oil and gas, electricity, railways and telecommunications have already been identified as sectors that might be ripe for limited non-state investment.
It may all look great on paper. But Asia Unhedged thinks Beijing needs to pick up the pace at a time when the economy hungers for real stimulus measures and China is shifting from export-led growth to domestic-demand.
Even bigger hurdles lie ahead: The central government still has to persuade entrenched interests at the local, provincial and national governments to surrender some control over state enterprises. They must also lure investors to buy shares after one of China’s worst stock market crashes.
Asia Unhedged wishes the mandarins saddled with this task the best of luck. Do we have to repeat that oft-quoted phrase about going the way of the dinosaurs?