A top executive from China Minsheng Investment says that the implementation of mixed ownership reforms for the immense Chinese state-owned enterprise sector will be the key to improving the country’s financial system.
Speaking at the 2017 Davos Forum, Zhang Sheng, vice-president and chief investment officer of China Minsheng Investment said that “state-owned enterprise mixed ownership reform is the breakthrough point for a new financial ecosystem”
According to Zhang, a “new financial ecosystem” is necessary for China’s new economic condition, with guidance of industry upgrades, increases in capital efficiency and and expediting industry adjustments lying at the core of such a system.
Zhang said that the financial sector will play an extremely important role in industry upgrades, and that the focal point for financial institutions should be the guidance of funds into the real economy, in the same way that capital supported the development of the US railway sand venture capital support the development of Silicon Valley.
Zhang expressed his concerns about the state-owned enterprise sector, pointing to the need for improvements to overall business performance and the persistence of high debt levels since 2008, with far strong performance amongst companies in the private sector.
For this reason Zhang argues that vigorous promotion of state-owned enterprise mixed ownership reforms can raise the operating efficiency of the real economy, thus preventing financial risk at a fundamental level, and forging a robust new ecosystem for the financial sector.
In Zhang’s opinion mixed-ownership reforms of SOE’s will be a critical role the Chinese economy’s emergence from an “L” shaped growth trap.
With respect to just how mixed-ownership reforms should be implemented, Zhang said capital increases should be used to inject large volumes of financial sector capital into the real economy, reducing SOE debt and financial risk.
Zhang also advocates opening protected sectors to private companies, in order to give greater incentives to SOE’s to improve in the face of competition.