State-owned Enterprises Must Be “Stronger, Bigger and Better:” Communist Party of China

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The leading theoretical journal of the Communist Party of China (CPC) has published an article stressing the essential role of the state-owned enterprises (SOE) in China after more than four decades of market reform and liberalisation, particularly in the areas of technological innovation and infrastructure developments.

The article published by Qiushi entitled “Contributing the Power of State-owned Central Enterprises to the Creation of a Strong National” (深学细悟笃行 为强国建设贡献国资央企力量) said that SOEs will continue to play an indispensable role in “Chinese-Style modernisation,” with an especial emphasis upon emerging technologies and infrastructure.

“The dominant position of public ownership cannot be shaken, and the leading role of the state-owned economy cannot be shaken,” said the article that was drafted by officials from the State-owned Assets Supervision and Administration Commission (SASAC) of China’s State Council.

“This is an institutional guarantee to ensure that the people of all ethnic groups in our country share the fruits of development, and it is also an important guarantee to consolidate the party’s ruling position and uphold China’s socialist system.

“State-owned enterprises have an important status, a key role, and are irreplaceable. They must be unswervingly stronger, better, and bigger.

“State-owned enterprises are the pillars of the socialist economy with Chinese characteristics, and they shoulder important missions in building a modern industrial system, building a new development pattern, promoting high-quality development, and promoting Chinese-style modernization.”

SOEs play key role in tech innovation

SASAC said central SOEs are slated to play an especially critical role in the development of emerging technologies and innovations, as an integral part of China’s broader industrial policy system.

“State-owned central enterprises should give full play to their backbone role of scientific and technological innovation, and highlight scientific and technological output, scientific and technological accomplishment, technological transformation and the tech sector.

“They should accelerate the development of a results-oriented scientific and technological innovation work system, and promote technological innovation, industrial innovation, and system and mechanism innovation in an integrated manner.

“The momentum of high-quality development has been significantly enhanced, and we have engaged in the in-depth implementation of an innovation-driven development strategy.”

Key sectors where central SOEs are expected to play a role in driving innovation include artificial intelligence, new energy, new materials, biotechnology, and environmental protection, as well as efforts to overcome shortcomings when it comes to integrated circuits and “industrial mother machines.”

National security, food security, resources and utilities are other areas where SOEs will continue to play a pivotal role within the Chinese economy.

“We must give full play to their role of supporting and guaranteeing [national] security; strengthen the capacity building of the national defence science and technology sector, promote domestic exploration of important energy and mineral resources and increase storage and production,” SASAC said.

“We must improve the ability to independently control seeds and control grain sources, and increase investment in new infrastructure such as communications.

“We must strengthen the layout of the main power grid, main pipeline network and national water network, accelerate the construction of key large channels and important hubs, and effectively play a supporting role.”

SOEs continue to see robust growth in Xi Jinping era

While China has continued to stress the role of the market and private sector actors in driving economic development during the Xi Jinping era, this has not translated into a diminution in the the scope or role of SOEs over the past decade.

Figures from SASAC indicate that during the period from 2012 to 2022, the total assets of central SOEs increased from 31 trillion yuan to 81 trillion yuan, while their total profit increased from 1.3 trillion yuan to 2.6 trillion yuan.

SASAC figures also point to an increase in the productivity and profitability of central SOEs. In 2022, the operating income profit margin of central SOEs was 6.8%, for an increase of 1.8 percentage points compared to 2012. Their labor productivity was 763,000 yuan/person, for an increase of 84.2% over 2012.

“Since the 18th National Congress of the Communist Party of China (2017), a total of 27 groups of 49 central enterprises have been subject to strategic reorganization and professional integration, and the removal of redundant productive capacity has been accelerated,” SASAC said in the Qiushi article.

“Businesses and low-efficiency and ineffective assets have been withdrawn in an orderly manner. The share of central SOEs in fields related to national security, the national economy and people’s livelihoods exceeds 70%, and the proportion of investment in their main businesses and the number of subsidiaries engaged in the main businesses both exceed 90%.

“The average annual growth rate of investment in strategic emerging industries currently exceeds 20%.”

SASAC highlights corporate governance improvements

SASAC said ongoing improvements to corporate governance at central SOEs have played a critical role in improving their productivity and efficiency.

“In the new era, state-owned central enterprises have achieved major reform results and successfully created a group of modern new state-owned enterprises full of vitality,” SASAC said in Qiushi.

According to SASAC, these corporate governance reforms involve shoring up the leadership role of the CPC, giving them a highly distinctive Chinese character.

“The modern enterprise system with Chinese characteristics has become more mature and finalized, fully implementing the ‘two consistent principles’, strengthening the leadership of the party in improving corporate governance, and comprehensively formulating a list of pre-research items for the party committee (party group) at the central enterprise group level.

“[We have] fully established boards of directors and basically achieved a system in which the majority of members are external directors, while the development of modern corporate governance mechanisms have accelerated and improved.

“The corporate system reforms have been fully completed, and for the first time we have achieved definition and classification of central enterprises at all levels in functional terms.

“The vitality and efficiency of SOEs have significantly improved, and the three major system reforms have broken the ice on a large scale and at multiple levels.”

Central SOE involvement in domestic and overseas infrastructure

SASAC highlighted the role of central SOEs when it came to infrastructure development both at home and abroad.

“State-owned central enterprises actively play a supporting role in the implementation of major national strategies,” SASAC said.

“They have focused on serving major national and regional strategies, actively promoted central-local cooperation, and signed a total of 4,478 strategic cooperative project agreements.

“They have actively participated in the joint development of the Belt and Road initiative… central SOEs are currently involved with are more than 8,000 overseas institutions and projects, with total assets of nearly 8 trillion yuan.

“A number of landmark projects such as the China-Laos Railway and the Piraeus Port in Greece have been successfully implemented, and a number of high-quality products such as high-speed rail and nuclear power have also gone abroad.”

SASAC also highlighted the role of central SOEs in the development of domestically produced aircraft carriers, the Hong Kong-Zhuhai-Macao Bridge and the Baihetan Hydropower Station.