Third Round of SOE Mixed-ownership Reforms Target Monopoly and Excess Capacity Industries

Several of the 31 state-owned enterprises slated for inclusion in the third around of mixed-ownership reforms have been revealed by domestic press reports, as the authorities gear up to approve the new plan.

Xinhua’s Economic Information Daily reports that plans for the third round of SOE mixed-ownership reforms are nearing submission, and has revealed the names of some the participating companies.

They include the Liaoning Transportation Construction Investment Group’s Transportation Planning Design Institute (辽宁交通建设投资集团交通规划设计院), the Liaoning Environmental Protection Group’s Liaoning Northern Environment Protection Co., Ltd. (辽宁环保集团辽宁北方环境保护有限公司), the Liaoning Energy Investment Group’s Wind Power Company (辽宁能源投资集团风电公司), and CNPC’s Dianneng Co., Ltd. (中国石油集团电能有限公司).

Mixed-ownership trials lie at the core of China’s ongoing reforms of its immense state-owned enterprise sector, seeking to improve the efficiency and corporate governance of government companies via the introduction of private capital.

The first two rounds of mixed-ownership reforms involving a total of 19 state-owned enterprises, including China Unicom and Eastern Airline Logistics, are expected to draw 300 billion yuan in fresh capital.

China’s State Council recently given its approval to the participation of further 31 SOE’s in a third round of mixed-ownership reform trials, which will cover five sectors including real estate, construction, building materials, telecommunications and mining.

According to experts the third round of reforms differs markedly from the first two rounds in that they focus upon SOE’s in monopoly sectors such as oil and rail, as well as sectors characterised by overcapacity including steel, coal and energy.

The inclusion of leading regional SOE’s, in particular those situated in China’s three north-eastern provinces and Hebei province, has also drawn much attention from economic observers.

Li Jin (李锦), chief researcher with the Chinese Enterprise Research Institute (中国企业研究院), said to Economic Information Daily that that large number of SOE’s participating in the third round of reforms, which exceeds the combined total for the first two rounds of reforms, indicates that mixed-ownership trials are achieving “scale and break-through momentum.’

Key sectors for the third round of reforms will include oil, natural gas, rail, heavy machine and the chemical industry – all of which are characterised by the presence of monopolies, as well as steel, coal, and power, all of which are fraught with overcapacity issues.

Li Jin also points to the inclusion of local SOE’s in the third round of mixed-ownership trials as a “bright spot” for the reform process.

According to Li conditions for reform at the local level are more mature, while the “pro activeness” of local government is greater, and the pace of reform will be more rapid.

“The shift from monopoly central SOE’s to local enterprises means that the next step could see local SOE’s becoming the key players in the mixed-ownership reform schedule.”

Mixed-ownership reform of SOE’s in China’s three north-eastern provinces is expected to be especially challenging given the larger number of “zombie enterprises” in the region, which will involve the handling of a greater volume of debt.

Li speculates that it’s highly likely that Beijing has specifically selected companies in the economically laggard  north-east, in order to serve as advance trials for mixed-ownership reforms of the region’s many troubled enterprises.

 

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