China to restructure 'zombie firms'

Major reforms announced for 'hugely inefficient' public sector
By Xiaoyi Shao and Brenda Goh
|hrreporter.com|Last Updated: 09/14/2015

BEIJING (Reuters) — China will work to reform its hugely inefficient public sector, making state-owned enterprises (SOEs) more subject to market forces and restructuring those that are performing poorly, while allowing some to close, government officials said on Monday.

In a long-awaited reform document published on Sunday, the government said it would introduce "mixed ownership" to its sprawling state sector, heralding its most far-reaching overhaul of SOEs in two decades, a task that has become more pressing as the economy slows.

Zhang Xiwu, deputy head of the country's state assets supervisor, told a news briefing that China would work to reorganize and merge SOEs in order to centralize state-owned capital in key industries, while restricting state investment in industries not in line with national policies.

"We will make more efforts in reforming 'zombie enterprises', long-time loss-making enterprises and in disposing of those low-efficient and non-performing assets," said Zhang of the State-owned Assets Supervision and Administration Commission (SASAC).

Zhang said that China would use stock exchanges, property exchanges and other capital markets to sell the assets of low performing SOEs "at fair prices".

China's Ministry of Finance and SASAC will also introduce pilot schemes at central government-owned conglomerates, to create state capital investment and operating companies to improve the competitiveness of those firms and create a "barrier" between enterprise and government, said Xu Hongcai, Assistant Minister of Finance.

Difficulties

Representatives from five government agencies, including the trade and labour ministries as well as the top economic planner, spoke at Monday's briefing, and presented their own documents on the reform plan, leading some analysts to question how effective the liberalization would be.

"Various agencies participated in drafting the document and are simultaneously presenting their own interpretation of what SOE reform means," said Andrew Batson, Chinaresearch director at Gavekal Dragonomics.

"There's a tension between the idea they want SOEs to be more independent, vibrant and commercial and the fact they're imposing all of these new rules and regulations on what they can do," he said.

SASAC's Zhang vowed to raise the performance of China's lumbering state sector by making them "stronger, better and larger" but conceded there would be difficulties pushing through the reforms.

Speaking to Reuters on the numbers of SOEs that would be cut, Lian Weiliang, vice chairman of the country's National Development and Reform Commission, said there was no such plan.

China's state sector is dominated by 111 central government-owned conglomerates, which account for about 60 per cent of SOE revenue and are overseen by SASAC. State media reported earlier this year that the number could shrink to 40 through mergers.

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