Opportunities for China’s State-Owned Enterprises Abound, but Reform Is Key

Reforms at China’s state-owned enterprises (SOEs) are accelerating as SOEs prepare to tap opportunities from internationalization and from the national Belt and Road Initiative, say leaders of the country’s two major SOEs.

Both Ma Guoqiang, Chairman and Party Secretary of China Baowu Steel Group Corporation, and Xu Jinghong, Chairman of Tsinghua Holdings, and a Co-Chair of the Annual Meeting of the New Champions 2017, said that they face relatively few restrictions in the reform process in terms of restructuring their business and shareholding, and in recruiting and retaining outside talent.

Mixed ownership including the introduction of foreign capital is allowed, and joint ventures with private Chinese companies and multinationals encouraged. In addition, management is free to introduce international best practices in corporate governance and in incentivizing employees.

Speaking on a panel discussion on the Future of Big China, Ma said: “We want to accelerate SOE reforms ... as the Belt and Road Initiative presents opportunities for SOEs.”

Ma disclosed that Baowu Steel has long researched opportunities that may arise from the Belt and Road Initiative, including countries like Pakistan that are located along the geographic stretch spanning the land-based Silk Route.

Ma said that under the present round of SOE reforms, the Baowu Group, which has merged its Baosteel and Wuhan Steel, is focused on spinning off companies that are not core to its steel operations, such as its food business.

Xu noted that an important reform issue revolves around asset ownership, and that determination of whether the state or management controls the assets, as well as devolution of decision-making, are critical as SOEs position themselves for the future. He noted that there are still “complicated oversight systems” that have to be resolved if the state is to unshackle SOEs to thrive in a competitive environment.

“The core of the issue is whether we can stimulate vitality in the SOEs,” said Xu.

In this regard, Fengming Liu, Vice-President of General Electric, and Vice-President and General Counsel of GE, People's Republic of China, agreed that the challenge before SOEs is no different from other companies. “We are all facing the same problem, how to make our companies bigger and stronger,” he said.

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