Chinese official media reports that state-owned enterprises will remain at the core of Beijing’s ongoing deleveraging campaign, and that reductions in their debt levels are not intended to shrink their economic importance.
A routine meeting of the State Council held on 7 February said that China would “continue to make state-owned enterprises (SOE) the priority of priorities, and further drive deleveraging with reference to SOE reforms, capacity reductions and cost reductions.”‘
A new report from the state-owned Xinhua News Agency claims that reductions in SOE debt levels will “raise full factor productivity…and thus drive efficiency reforms.”
“The core of SOE deleveraging is raising corporate revenues and efficiency levels,” said Xu Zhaoyuan (许召元), chair of the Industrial Economic Research Office of the State Council’s Development Research Centre, to Xinhua.
“At present there are many reasons that SOE efficiency isn’t high, and one of the key reasons is that a shift from old to new drivers hasn’t yet been properly achieved.”
“Over the past few years one of the key reasons that China’s economy has continued to maintain medium to high rates of growth during a transitional period, as well as comparatively stable employment, is that the Chinese economy has found new growth drivers.”
Xu notes that private companies have proved far more adept at adjusting to the transition in China’s economic growth model and adopting new drivers than the state-run sector.
“We need to realise that the contribution made by the private economy to these new drivers is quite high, and some SOE’s aren’t performing well enough,” said Xu.
“In terms of regions, the economically strong Pearl River Delta and Yangtze River Delta are all places where the private economy accounts for a comparatively high share of the market. The companies with which we’re all familiar are private enterprises such as Alibaba, Baidu, Tencent, Jingdong, and Huawei.”
According to Xu the deleveraging of SOE’s should not mean a diminution in their economic role, and must also be accompanied by efficiency gains and a shift to new growth drivers.
“During the process of switching from old to new drivers, if SOE’s are unable to switch development tracks and continue to employ previous development models, the outcome of reductions in debt could be that SOE’s become smaller and smaller, and their contribution to society even weaker,” he said. “This is not the original intention of SOE develeraging.”
Xu emphasised the need to improve modern corporate governance, as well as employ market-based methods to drive SOE mixed-ownership reforms, in order to raise SOE business and management levels.