Local Governments Set to Accelerate State-owned Enterprise Reforms

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China’s local governments have signalled accelerated reform of state-owned assets and enterprises within their respective jurisdictions, as part of efforts to shore up economic competitiveness.

Since the start of the year a slew of Chinese local governments have held state-owned assets and state-owned enterprise work meetings, including the governments for the provinces of Hainan, Jiangsu, Hunan, Shandong and Sichuan.

The common theme for these meetings has been corporate restructuring for the purpose of creating competitive “first-rate” enterprises; mixed-ownership reform of SOE’s as well as the disposal of the government’s “zombie” companies.

On 22 January Sichuan province convened its State-owned Asset and SOE Reform Development Meeting, which outlined a total of “six main targets” that the midwestern province hopes to complete by 2020.

These include the total SOE assets of the province breaching the 10 trillion yuan threshold, ownership rights breaching 4 trillion yuan, and the creation of large-sale enterprises and corporate groups.

Sichuan province aims to have at least two companies on the global Fortune 500 list, and ten companies amongst the Chinese Fortune 500 by the end of the decade.

The Hunan province government hopes to use reform and modernisation to increase the competitiveness of its local SOE’s, with the goal of putting one to two companies on the global Fortune 500 list, as well as place 6 to 8 companies on the Chinese Fortune 500, before the end of China’s 13th Five Year Plan. 

China’s local governments also hope to drive deleveraging of the SOE sector – which accounts for a disproportionate amount of the country’s exorbitant debt burden, via further disposal of “zombie” enterprise.

Shandong province plans to dispose of 72 “zombie enterprises” in 2018, in order to fulfil the target of dispensing with 321 zombie enterprises within a three year period.

On 22 January Xu Guoping (徐郭平), the chair of the Jiangsu province State-owned Assets Supervision and Administration Commission (SASAC), said that this year the province would accelerate the reorganisation of inefficient or low-efficiency assets, to ensure that all zombie enterprises targeted would be fully liquidated before the year’s end

Hunan province has already launched disposal procedures for two of its main zombie companies: Hunan Communication and Water Conservancy Group (湖南交水建集团) and Valin Group (华菱集团), and hopes to fully complete disposal work for other zombie enterprises by the end of 2019.

China’s provincial governments have also set fresh targets for the SOE mixed-ownership reforms that Beijing hopes will improve the efficiency of government companies.

Shandong province plans to complete mixed-ownership reforms trial involving two to three provincial corporations in 2018, as well as advance restructuring of auto-manufacturing, medical treatment and tourism conglomerates.

Hunan province plans to accelerate the pace of SOE restructuring in 2018, targeting around 24 companies in total, while Sichuan province and Jiangsu province also hope to drive further mixed-ownership reforms for their own government-owned companies.

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