China issues guideline on reforming USD 15.7 trillion SOEs

China has unveiled a guideline for reforming management of the country's colossal state-owned assets valued around USD 15.7 trillion as part of a new reform to halt the slide of economy.
The guideline approved by the cabinet specifies plans to establish investment firms to manage state-owned capital and restructure state-owned enterprises (SOEs).
The new reform is regarded significant as China has about 150,000 SOEs, which hold more than 100 trillion yuan (USD 15.7 trillion) in assets and employ over 30 million people.
However, they posted an 8.2-per cent decline in profits in the first three quarters of this year.
China's state-owned assets have seen increasing profits and become more competitive in past decades, but problems remain, including lack of efficiency, improper regulation and loss of assets, according to the new guideline.

It said the reforms aim to help the state-owned sector adapt to market developments and increase its vitality, influence and risk resistance.

The new guideline for SOEs is part of big reforms initiated by the Chinese government to ensure minimum 6.5 growth in the next five years under the new plan which will come into effect from next year.
Chinese economy for the first time slipped below seven per cent to 6.9 per cent in the third quarter this year.
Under the guideline China will set up firms in charge of state capital investment and operations either by transferring state equity and budgets to a new company or assigning the tasks to a qualified wholly state-owned enterprise that already exists, state-run Xinhua news agency reported.

The investment firms can increase the value of state capital by operating equities, conducting value-based management and handling fund movements.
China will also eliminate outdated and excessive capacity of SOEs and dispose of inefficient assets.
State capital will be removed from some SOEs, while others will be restructured or upgraded on the basis of innovation.
The newly distributed state capital will be used in key sectors, major infrastructure projects, strategic industries, key parts of the industrial chain and competitive firms, the new guideline said.
In the process of establishing investment firms and restructuring SOEs, the government will transfer some state equity into the hands of social security funds, so that proceeds from those equities can be used to make up shortfalls in pension funds, the guideline said.

The document stressed the separation of government administration from corporate management, drawing clear lines between state asset regulators, state capital investment firms and individual SOEs.
Regulators will not intervene in corporate management of SOEs, and a unified network will be established to publicise information about state capital, the fiscal conditions of SOEs and salaries of SOE management staff.