China Launches Reform of 8 Trillion Yuan in Central State-owned Enterprise Assets

The Chinese government has launched reforms of its vast central state-owned enterprise sector with the release of the “Central State-owned Enterprise System Reform Work Implementation Plan” (中央企业公司制改制工作试试方案).

The Plan, which was released by the central government via its official website on 26 July, covers a total of 69 central SOE’s and 3200 subsidiaries, as well as approximately 8 trillion yuan in assets, with the aim of converting them away from full public ownership

The Plan proposes that all SOE’s covered (with exception of financial or cultural enterprises) that are registered in accordance with the “Wholly People-Owned Industrial Enterprise Law” and under the administration of the State-owned Assets Supervision and Administration Commission register as limited liability or joint-stock companies in accordance with China’s Company Law prior to the end of 2017.

According to the plan SOE groups can be converted into either state-owned wholly-invested companies or companies with diversified equity holders, the later of which must obtain the approval of China’s State Council.

As of the end of 2016 over 92% of the central SOE’s and subsidiaries administered by SASC fell under the remit of proposed reforms, yet progress has stalled due to their costly and time-consuming nature.

Out of the 101 central SOE’s a total of 69 remain under full public ownership, as do 3200 of the 5000 central SOE subsidiaries.

Central SOE’s hold approximately 50 trillion yuan in assets, of which 8 trillion yuan remain under full public ownership.

“The reform plan clarifies support policies for the reform of the enterprise system, and proposes relevant policy support for state-owned allocated land disposal, taxation, industrial and commercial registration amendments and the continuation of business qualifications,” said Bai Yingzi, head of SASAC’s reform department.

“[This] sets an excellent foundation for the successful progress of enterprise reform work.”

According to Peng Huagang, SASAC vice-secretary, mixed-ownership and asset securitisation are a key part of ongoing central SOE reforms.

“The completion of enterprise ownership reform is of the utmost importance for the establishment of a modern enterprise system for central SOE’s, as well as a precondition for a series of reforms including mixed-ownership and asset securitisation,” said Peng.

“At the same time, with respect to the operating difficulties of fully public owned enterprises, reorganisation, clearance and revocation may be performed based on requirements in relation to the reduction of management tiers and legal persons, and the disposal of zombie enterprises.

“Consequently, enterprise ownership reform will accelerate clearance and reorganisation work in relation to zombie enterprises.”

The Plan states that the conversion of central SOE’s into state-owned wholly invested companies or state owned and state-owned share-controlled enterprise wholly invested subsidiaries can use the net assets of auditing for the previous year as the basis for confirming registered capital.

With respect to conversion into diversified equity enterprises, the basis for capital subscription shall include capital inspections, financial assets as well as asset evaluations in made in accordance with relevant procedures.

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