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State-owned Enterprise Reform: New Paradigm and Policy Challenges

Aug 17,2015

By Zhang Wenkui, Enterprise Research Institute of DRC

The old paradigm of state-owned enterprise (SOE) reform is an ownership reform which is reactive and passive by nature. Its process is gradual with slow progress, leaning to a shilly-shally stand towards overcoming various problems under the new situation. A new round of SOE reform should neither wait for a large-scale implementation until more and more SOEs have become bogged down in business operation nor adopt an opportunistic attitude of muddling along without taking any responsibility. The right approach is to set a specific timetable in accord with the tasks as prescribed by the Third Plenary Session of the Eighteenth Central Committee and to strive for a basic completion of an overall ownership reform and a package of enterprise restructuring by 2020. Therefore, a new paradigm needs to be introduced. In its core lies the pursuit of an overall and initiative ownership reform with scheduled time. On such basis is then promoted a transition of corporate governance and a package of restructuring in aspects of business structure, assets and liabilities, organizational structure, management process, personnel policies, pay and benefit as well as incentive mechanism, thereby completing a substantive corporate transformation and a restoration of global competitiveness. While introducing the new paradigm, several unnegligible policy challenges need to be overcome. 1. How to define and prevent the loss of state-owned assets? Towards this end, the government should provide a more detailed judicial interpretation on accessing the loss of state-owned assets. 2. How to size up the ownership structure of mixed ownership? The government may adopt a list policy stating that each first-grade enterprise sets out its ownership structure in the first step of the mixed ownership reform. 3. How to determine policies on holding and transacting state-owned shares? This requires the government to formulate policies for first-grade mixed ownership enterprises about the holding and transaction of state-owned shares and about mixed ownership enterprise management. 4. How to solve the long-overdue issues left over by the planned economy in SOEs? Relevant government departments have to formulate policies for the interpretation of the identity, relevant interests and benefits of SOE employees. In addition, such difficult problems as how to understand the role of SOEs in national security and foundation need also to be addressed.